ORAL ANSWERS TO QUESTIONS

HOME DEPARTMENT

The Secretary of State was asked—

Child Detention (UK Ports)

Jo Swinson: What assessment she has made of child detention for immigration purposes on arrival at UK ports; and if she will make a statement.

Damian Green: We always need to hold some families at the border, either until the next available return flight or until further inquiries are made, or, in the case of unaccompanied children, until alternative accommodation is arranged. Not to do so would weaken border security, and would not meet our duty of care to keep children safe.

Jo Swinson: I thank the Minister for his reply and warmly welcome the Government’s efforts to end the detention of children in immigration removal centres such as Dungavel in Scotland. As he has said, some detention of children at ports and airports is necessary, and the average period of detention for children is currently about 10 hours. What is the Home Office doing to minimise the amount of time that children are detained for, and thus minimise the distress caused to the children involved?

Damian Green: I am grateful for my hon. Friend’s support for our general approach of ending the detention of children for immigration purposes. She asked specifically about ports, and we have introduced tighter governance, which means that a greater level of authorisation is now required for the detention of a family in a removal centre or when detaining them for more than 25 hours or overnight. Family cases at ports of entry are specifically prioritised and dealt with as quickly as possible in order to minimise the time that families are held in short-term holding facilities.

Tom Brake: Can the Minister confirm that detailed statistics on children at ports of entry are now being kept? Will he tell us what type of accommodation they are required to be detained in, and whether the Government have any specific plans to reduce the number of children being detained in that way?

Damian Green: As I have already explained, we detain children largely for their own protection. In practical terms, if an unaccompanied child arrives at Heathrow in the early hours of the morning, keeping them in the room at Heathrow that is set aside for them is a lot more sensible than allowing them to roam the streets of London. I hope that my right hon. Friend will recognise that the accommodation in which they are kept is being improved, and that they are kept there for the minimum amount of time that we need before moving them on to somewhere where they can be safe.

Human Trafficking (Child Victims)

Sharon Hodgson: What steps she plans to take to reduce the number of child victims of human trafficking who go missing.

Damian Green: The Government’s new missing children and adults strategy provides a core framework for local areas to put in place better arrangements to prevent children and adults from going missing. The strategy highlights examples of good practice that have reduced the number of missing trafficked children, and we are working to spread that good practice.

Sharon Hodgson: Does the Minister agree with ECPAT UK that the provision of an appointed guardian would ensure that child victims of trafficking would receive all the support that they needed, and that that would vastly reduce the number of children who are going missing? If he does agree with that, why are the Government still refusing to legislate on guardianship, despite such legislation having been called for in an EU directive and by many child welfare groups?

Damian Green: I do not think that making statutory provision for adding a guardian is necessary, because every looked-after child is already allocated a social worker and an independent reviewing officer, and is provided with access to an advocate. Those children are therefore already given a considerable amount of support. Also, in factual terms, the number of such children who are going missing, while still too high, is considerably lower than it was a few years ago. Local authorities are therefore getting to grips with that underlying problem as well.

Peter Bone: I haven’t the foggiest idea how the Minister can say that, because local authorities do not identify trafficked children. I have the greatest respect for what he is doing in regard to trafficked children, but this is none the less the biggest hole in the Government’s strategy. Child victims of human trafficking are looked after less well than adult victims. That cannot be right, and it has to be changed.

Damian Green: Let me explain to my hon. Friend how I arrived at those figures. They are not my figures; they are figures from the Child Exploitation and Online Protection Centre, a body that is specifically involved in the protection of children. It said that, in 2007, 55% of such children went missing from care. That was an appalling figure, but it has most recently come down to 18%. I agree with my hon. Friend that that is still far too high, but he can see that local authorities are making considerable progress. In that respect, I particularly commend Hillingdon council, which is one of the most experienced councils in this regard, as it covers Heathrow. In 2009, 12% of unaccompanied children were going missing from its care; it has now reduced that number to 4%.

Chris Bryant: Tackling human trafficking undoubtedly requires strong international organisations and, in some cases, an international power of arrest to apprehend these criminals. Will the Minister answer a very simple question? Will he guarantee that he, unlike many of his party’s Back-Bench Members who have called for it, will not withdraw from the European arrest warrant—yes or no?

Damian Green: I commend the hon. Gentleman’s ingenuity in putting that question. As he will recognise, the vast majority of trafficking comes from outside the European Union, so his question, though ingenious, is not strictly relevant.

Henry Smith: What specific support can be given to local authorities with children’s services responsibilities that have major ports, such as Gatwick airport in West Sussex, within their boundaries, particularly with respect to supporting 16 to 18-year-olds who are so often those who go missing?

Damian Green: My hon. Friend makes a good point in that local authorities that have major ports within them tend, obviously, to face bigger problems with trafficked children but also tend to develop greater expertise as well. That is why bodies like CEOP and the United Kingdom Border Agency do their best to spread best practice around the country so that every local authority can know that it is performing as well as possible in this important area—

Mr Speaker: Order. We are grateful to the Minister.

Ann Coffey: Does the Minister agree that if we are to prevent children from being trafficked within the UK, local agencies and parents need to be more aware of the early symptoms of sexual grooming, including repeated missing episodes? What more can he do to raise such awareness?

Damian Green: I agree completely, and I know the hon. Lady rightly takes a great interest in this area. As I say, it is a question of spreading best practice around all the agencies—not just local authorities but the police as well. We try hard to ensure that all police forces are much more aware of the specific symptoms of these types of problem so that they can treat anyone affected in the appropriate way.

Cybercrime

James Morris: What recent assessment she has made of the level of cybercrime.

Jessica Lee: What recent assessment she has made of the level of cybercrime.

James Brokenshire: A report by Detica and the Office of Cyber Security and Information Assurance estimates that cybercrime could cost the UK as much as £27 billion a year. The Government published their cyber-security strategy in November, which sets out how we intend to tackle this threat.

James Morris: Tackling cybercrime requires a co-ordinated response across government, including liaison with the business community. What is the Minister doing to ensure that we get that level of cross-government co-ordination, and what is he doing to ensure that we get business involved in coming up with some of the solutions we need to tackle that growing problem?

James Brokenshire: I agree with my hon. Friend that this issue touches all sectors, whether it be Government, individuals, charities or the voluntary sector as well as business. We are working closely across government, including with the Office of Cyber-Security and Information Assurance, which co-ordinates the national programme. We said in the cyber-security strategy that we would create a forum, bringing together industry, law enforcement and Government. That is important, as we recognise that this is a broad and wide-ranging challenge. We shall take this forward in tandem with the Department for Business, Innovation and Skills.

Jessica Lee: Having recently dealt with an alleged victim of cyber-stalking in my Erewash constituency, I certainly welcome the specialist cybercrime units within the National Crime Agency, but does my hon. Friend agree that we must continue to work with Governments overseas to ensure that we continue to contain this threat?

James Brokenshire: My hon. Friend highlights a powerful and important point about the individual impact of these crimes. Although our legislation covers harassment—whether it happens on or offline—there is an international perspective to this challenge, with internet service providers potentially hosting material from overseas. We have recently been involved with a consultation on stalking, which closed yesterday, that asked for views on how to protect the victims of online stalking more effectively. We are now reviewing the submissions we have received; we will respond and publish the details of our response in due course.

Denis MacShane: I am sure the Minister will agree that cybercrime is quintessentially a transnational crime. Although his colleague the Minister for Immigration seems to think that the Lithuanian, Slovakian, Romanian, Bulgarian and Polish traffickers in British prisons are not from the European Union, will he inform the House what the Government’s position is on the European arrest warrant? This issue has been widely covered in the press. We brought Hussain Osman back from Rome after 7/7—

Mr Speaker: Order. It is always difficult to interrupt the right hon. Gentleman’s flow, but I am sure he is asking this question with specific reference to its potential to address the issue of cybercrime.

James Brokenshire: I say to the right hon. Gentleman that we do recognise the international perspective in respect of online criminality. That is why, unlike the previous Government, we ratified the Budapest convention—the Council of Europe convention on precisely this issue—to ensure that there is better co-ordination and greater focus on legislation relating to online crime. We drew attention to that approach at the London conference, and we continue to highlight this message.

Patrick Mercer: The Minister makes the point that cybercrime and cyber-attacks will be dealt with by more than one Department. What is the overlap between the Home Office and the Ministry of Defence and how will the costs be shared between them?

James Brokenshire: As my hon. Friend will be aware, this Government’s approach to cyber-security has included a commitment of £650 million to our cyber-security programme. We in the Home Office are focusing on the criminality aspects, for which £63 million has been identified. We also work with our colleagues across Government, including in the MOD, and the Cabinet Office co-ordinates the overall approach. There is a joined-up approach across Government, therefore, because we recognise that this issue must be addressed in that way.

Alcohol-related Crime

Chris Evans: What steps she is taking to reduce alcohol-related crime.

Paul Maynard: What steps she is taking to reduce alcohol-related crime.

Andrew Gwynne: What steps she is taking to reduce alcohol-related crime.

James Brokenshire: Alcohol should no longer be the driver of crime and disorder that it has been over the past decade. That is why we have legislated to give the police and local communities more powers to tackle late-night drinking problems and to crack down on those selling alcohol to children. We will set out further actions in our forthcoming alcohol strategy.

Chris Evans: The Gwent police “Town Safe” scheme has reduced violent alcohol-induced crime by 27% in the past year. Will the Minister meet me and a delegation from Gwent police to discuss how we might roll this scheme out?

James Brokenshire: I congratulate local initiatives and partnerships that make a significant difference in their communities. I remember travelling to Newquay to see a very effective partnership scheme addressing these problems in the south-west. I congratulate the hon. Gentleman’s community on taking the step he mentions, and I am certainly willing to consider a request to meet representatives of the scheme to hear more about it.

Paul Maynard: I welcome the launch of the public consultation on the regulation of late-night drinking venues. What powers does the Minister intend to place in the hands of my constituents so that they can minimise the disruption and harm caused by so much late-night drinking in town centres such as Blackpool’s?

James Brokenshire: My hon. Friend highlights a problem that we have identified: we must ensure that local communities have a proper say on licensing matters. That is why we have legislated to strengthen the powers of councils to clamp down on late-night drinking and sales after midnight, if they so choose. That is also why we are introducing the late-night levy to provide some element of cost reimbursement for dealing with the problems associated with late-night drinking. Equally importantly, on an individual basis we must ensure that
	people can make representations on licensing. These matters must not be subject to the over-restrictive requirements adopted by the previous Government.

Andrew Gwynne: Is the Minister aware of the Alcohol Health Alliance research suggesting that the Government’s proposed ban on the sale of alcohol at below the cost of duty plus VAT will increase the price of only one in every 4,000 drinks sold? What reduction in alcohol-related crime does the Minister expect to follow on from that?

James Brokenshire: It is interesting that the hon. Gentleman seeks to criticise the fact that the Government have recognised that the availability of cheap alcohol is a significant issue that needs addressing, because the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson) certainly suggested that the previous Government did not do that. He said:
	“I regret not doing more to tackle the problems caused by binge drinking”.
	The Government recognise those problems and we are actually acting to do something about them, unlike the previous Government.

Sarah Wollaston: What estimate has the Minister made of the extent to which cheap alcohol is fuelling the rise in domestic violence?

James Brokenshire: My hon. Friend highlights the very relevant issue of the connection between alcohol and domestic violence and abuse in the home. Studies have drawn attention to that, which is why we are seeking to take the action that we have been taking, through controls on licensing and addressing the issue of pricing. We will be providing further details on the Government’s alcohol strategy shortly.

Keith Vaz: As the Minister knows, alcohol-related crime costs £7.3 billion a year. Four years ago, the Select Committee on Home Affairs recommended that a minimum price for alcohol be introduced. The Scottish Government have accepted that, but neither the previous Government nor this one have done so. Is it not time that we told the big supermarkets that the level of cheap alcohol in supermarkets is actually fuelling this crime?

James Brokenshire: I certainly recognise the problems linked to alcohol-fuelled crime; there were about 900,000 violent crimes linked to alcohol in 2010-11. I also know that this issue has been flagged up before by the right hon. Gentleman in debate and by the work of his Committee. The Government are committed to tackling the harms of alcohol, and we recognise that the availability of cheap alcohol is a significant issue that needs addressing. He will recognise that some complex issues are involved in terms of regulation and other aspects. We are continuing to examine this matter carefully and closely, recognising that price is a relevant and important factor in dealing with this problem.

Stephen Gilbert: In an earlier answer the Minister referred to the success of the Newquay partnership in tackling alcohol-related disorder. That partnership would be hugely more successful
	if there were a specific offence of urinating in the street. Will the Government consider the introduction of that offence?

James Brokenshire: My hon. Friend has highlighted an issue of wanton antisocial behaviour, and I was struck by how the police are having to deal with some antisocial problems in his community. There are offences on the statute book that could be used to deal with the problem that he has identified, but if he is willing to write to me, I will certainly look into this matter in further detail.

Frank Field: May I bring the Minister back to the issue of minimum pricing for alcohol? In Merseyside, the city region’s poverty and life chances commission has advocated a minimum price per unit of alcohol. Is that strategy, which is to cover six boroughs, one that he supports?

James Brokenshire: The Government believe that alcohol pricing and taxation are matters best handled at a national level, but where there are suitable local solutions we will welcome them. A number of challenges are involved in delivering local pricing policies, and we will work with local authorities and the trade to consider the legal and practical implications of this issue.

Misuse of Drugs Act 1971

Simon Hughes: When she last reviewed the operation of the Misuse of Drugs Act 1971.

Theresa May: After a thorough review of drugs policy, the coalition Government launched their new drug strategy in December 2010. The Misuse of Drugs Act provides a strong legislative framework, but we have further strengthened it through the introduction of temporary orders to allow us quickly to ban so-called “legal highs” as soon as they are developed and become dangerous. We continually consider evidence and advice from the Advisory Council on the Misuse of Drugs on the control of emerging drugs.

Simon Hughes: I am grateful for the Home Secretary’s personal interest in this issue. Many people outside Parliament, and from all parts of Parliament, still believe that our drugs laws are not working nearly as well as they should. Will she consider the view taken by my party’s conference last year, which was that an independent panel should be tasked with reviewing the Misuse of Drugs Act and reporting back to her, and there should be a subsequent debate in Parliament?

Theresa May: I thank my right hon. colleague for his interest in this issue. As he knows, we have already, as a coalition Government, put a considerable amount of work into our new drug strategy, and I suggest to him that we need to see how that strategy, once it is fully rolled out, is having an impact. Other measures that the Government are taking will also have an impact, such as the introduction of the National Crime Agency, which will strengthen our ability to deal with the organised criminal gangs that bring in the drugs that end up causing so much damage to people on our streets.

Jeremy Corbyn: The Home Office has undertaken a study into the use of khat, and into whether to make it illegal or to retain its current status. Will the Secretary of State say what progress has been made on the consultations within the community, and if and when there are to be any proposals from her Department?

Theresa May: I am grateful to the hon. Gentleman for raising that issue. The question of khat has caused concern to a number of people for some considerable time. I have asked the ACMD to consider the use of khat. It will conduct a study and expects to be able to report back to me and the Home Office later this year.

Crime Levels

Julie Hilling: What assessment she has made of the level of crime since May 2010.

Simon Danczuk: What assessment she has made of the level of crime since May 2010.

Theresa May: Crime remains too high. That is why we are reforming the police, so that they are free from paperwork and free to fight crime. We have also set up the national crime mapping website, police.uk, which now provides the public with street-level information about crime and antisocial behaviour on a monthly basis, allowing them to access crime and policing information in a way that is helpful to them.

Julie Hilling: With a 10% increase in robbery with knives, is this the right time to cut 16,000 police officers?

Theresa May: There is no simple link between the number of police officers and the level of crime. We can see that evidenced in the UK and elsewhere, with both police officer numbers and crime falling in a number of areas. I suggest to the hon. Lady that she might talk to the Chairman of the Home Affairs Committee, her right hon. Friend the Member for Leicester East (Keith Vaz), who last year said exactly this:
	“We accept that there is no simple relationship between numbers of police officers and levels of crime.”

Simon Danczuk: Crime in Rochdale is now higher than the national average on nearly every indicator. Will the Home Secretary explain to my constituents how cutting 16,000 police officers will help to reduce that difference?

Theresa May: I have just responded to the point about the relationship between numbers of police officers and levels of crime. I believe that the hon. Gentleman’s constituency comes under the Greater Manchester police force, and that force has made some transformations in how it copes with the budget cuts it has to deal with, with the result that 348 police officers have been released from support areas so that those individuals can be out in front-line roles. That is what it is about. It is about the deployment of officers, not the numbers.

Philip Hollobone: In the town of Kettering, from 2010 to 2011 overall crime has fallen by 4%, robbery by 11%, theft from motor vehicles by 20% and residential burglaries by 40%. Will the Home Secretary join me in welcoming those figures?

Theresa May: I do indeed welcome those figures, and I thank my hon. Friend for bringing them to the attention of the House. I also commend the local police and other local agencies that have been involved in ensuring that such a fall in crime can take place in my hon. Friend’s constituency.

Robert Halfon: Following on from my hon. Friend the Member for Kettering (Mr Hollobone), is my right hon. Friend the Secretary of State aware that in Harlow crime has also fallen since 2010, with 87 fewer burglaries and 63 fewer cases of criminal damage, among many other figures? Does that not show that community-led policing with limited resources makes a difference? Will my right hon. Friend pay tribute to Essex police?

Theresa May: I am happy to join my hon. Friend in paying tribute to Essex police, and to their work in his constituency and others covered by that force. We do indeed see the value of community-led policing, and that is why chief constables up and down the country are making every effort to ensure that they can get police officers out from back-office posts and on to the front line, where people want to see them.

David Hanson: The latest crime figures show that personal crimes of robbery, burglary and theft have gone up by 11% in the past year—the largest increase in more than a decade. Contrary to what the Home Secretary has just said, the independent inspectorate of policing has said that a 10% cut in police numbers will lead to a 3% increase in property crime. Quite frankly, the Home Secretary should be cutting crime, not police officers. Will she urgently revisit plans to cut 16,000 police from our streets?

Theresa May: Well, really, I have to say to the right hon. Gentleman that he knows full well there is no direct link—there is no simple link—between crime and—

Chris Bryant: Ooh, you slipped up there didn’t you?

Theresa May: The Immigration Minister is getting very excited.

Hon. Members: He’s a shadow Minister.

Mr Speaker: Order. May I just explain that the deal for an Opposition Front Bencher of the hon. Gentleman’s important but middling rank is one question a month—not one question and multiple heckles? I know he is trying to reinvent the deal but the deal is as I have just described it.

Theresa May: Thank you, Mr Speaker. I was going to say to the shadow Immigration Minister that he does, indeed, get excited very often about things that he need not get excited about. There is no simple and direct link between the number of officers and the level of crime. We see
	that in the UK and across the world. What Opposition Front Benchers need to focus on is the deployment of officers. They need to ask themselves why under the previous Labour Government so many officers were stuck in back-office posts in areas such as human resources instead of being out on the front line fighting crime.

Police Morale

Kevin Brennan: What recent assessment she has made of the level of police morale.

Nick Herbert: The police do one of the most important jobs in this country with great courage and commitment. As the service faces challenges, we will do all we can to reduce bureaucracy, promote professionalism and make it easier for officers to do their job.

Kevin Brennan: “Put more police on the streets and they’ll catch more criminals. It’s not rocket science is it?”
	So said the Minister’s party’s 2005 manifesto. We have morale at rock bottom, police numbers are to be cut by 16,000 and personal crime is up 11%. When exactly did his party become so weak on law and order?

Nick Herbert: What hon. Members still do not seem to understand is the importance of deployment and what officers are doing. According to the latest figures from Her Majesty’s inspectorate of constabulary, the proportion of the policing work force who are on the front line is increasing.

Andrew Bridgen: May I read the House a quote from the chairman of the North Yorkshire Police Federation? He said:
	“I can never recall a time when officers were so angry. We have been betrayed by a morally redundant Government.”
	Given that that quote comes from 2008, does my right hon. Friend agree that the Police Federation has long been worried about police morale and that the best way of improving police morale is to cut the paperwork and bureaucracy and get them out on the streets doing something that they actually joined the police force to do?

Nick Herbert: I strongly agree. Those of us who have experienced Police Federation conferences over the years know that they are always lively and robust events. The Labour party knows that too. I note that the chairman of the Police Federation, Paul McKeever, said last year:
	“Reading some of their press materials one would be forgiven for thinking that if Labour were in power they would in fact be increasing the police budget”,
	whereas we know that Labour is committed to cutting it.

Stella Creasy: As we are listening to our chief constables, let us hear what they have been saying this year about the cuts. The chief constable of Dyfed Powys says that cuts to police budgets mean they will no longer be able to conduct cold case reviews such as the one that caught serial
	killer John William Cooper, and Gloucestershire’s chief constable says his force is on a cliff edge. What effect does the Minister think that will have on police morale?

Nick Herbert: The Opposition need to be plain with police officers and staff about the importance of dealing with the deficit and the fact that they too are committed to reducing police spending. They have admitted that they wish to reduce spending by more than £1 billion, and now we know that they wish to freeze pay as well. They cannot complain about these cuts and remain committed to the cuts themselves.

Police Funding Settlement

Owen Smith: Whether she plans to reassess the police funding settlement for 2012-13.

Nick Herbert: No; the allocations of police funding were set out last week and will be debated in the House on Wednesday.

Owen Smith: I thank the Minister for that concise and to-the-point answer. He will know that the net effect of the spending cuts in Wales is a reduction of 750 in the number of officers on the front line. What guarantees can he offer the people of Wales that that reduction will not be attended by a corresponding increase in crime in Wales?

Nick Herbert: I know from talking with chief constables in Wales that they are absolutely committed to continuing to reduce crime. The important point is that, according to the latest figures, recorded crime in Wales continued to fall. It is very important that police forces focus on ensuring that the available resource is deployed effectively and that they prioritise the front line and drive out cost in those back-office functions. Forces up and down the country are showing that that can be done.

Nigel Mills: Does the Minister not think that it is time to review the damping mechanism in the settlement, which deprives forces such as the Derbyshire constabulary of large amounts of funding each year?

Nick Herbert: My hon. Friend will have an opportunity to raise that issue in the police funding debate on Wednesday. I know that that is a constant concern of forces that lose out from damping and that they want to move towards the formula. We are committed to doing that and will look at these issues carefully for the next years of the spending settlement. However, an equal number of forces feel that they would lose out as a result, so it is a very difficult issue.

Diana Johnson: The Government have now admitted that they got police funding for London wrong with their U-turn on Metropolitan police funding and a £90 million bung for Boris’s re-election campaign, yet the Met is not the only force facing pressures from the Olympics and other issues. Will the Minister now reverse the cuts to other forces, such as West Midlands, Greater Manchester,
	Humberside and Merseyside police, all of which are cutting the number of officers? Cut crime, not the police.

Nick Herbert: It is hardly likely that the coalition Government would be acting in the way the hon. Lady suggests. Of course, in London we have recognised the special position of the Olympics and the royal jubilee through a one-off additional payment, which we can discuss further on Wednesday. I note that once again Opposition Front Benchers are pretending that they want to increase spending on police forces, but they have in fact admitted that they would cut police spending by over £1 billion a year and introduce additional cuts that would match our own.

Metal Theft

Jason McCartney: What progress she has made in tackling metal theft.

Theresa May: The Government take the growing problem of metal theft very seriously. Last week I announced legislative measures to the House that will significantly raise the penalties for rogue dealers and ban cash payments for scrap metal. These measures are part of a coherent package to tackle metal theft. We are strengthening the law, cracking down on rogue dealers and targeting the criminals who supply them, including through the funding of a £5 million national metal theft taskforce.

Jason McCartney: Last month I visited Schofield scrap metal merchants in Linthwaite in my constituency and heard that it, too, has been the victim of metal theft. What can my right hon. Friend say to reassure reputable scrap metal merchants that it will be the criminals who are punished, not the hard-working family businesses that play a key role in our economy?

Theresa May: Indeed, reputable scrap metal dealers play a role in our economy, and everything we are doing is intended to bear down on the rogue scrap metal dealers who receive stolen goods rather than on reputable dealers. We are working with the British Metals Recycling Association and other industry representatives to ensure that the interests of the law-abiding businesses are reflected in the work we are doing.

Wayne David: Does the Home Secretary believe that the police should be allowed into scrap metal dealers in order to gain a comprehensive view of what is happening in them?

Theresa May: We are looking at the whole issue of strengthening police enforcement, and one of the things we are doing is undertaking a number of exercises—an example has been seen in the north-east in recent weeks—where the police have strengthened their enforcement and gone into scrap metal dealers where they believe rogue dealing is taking place.

Administrative Burdens (Police)

John Baron: What plans she has to reduce administrative burdens on police forces.

Nick Herbert: We have already announced a package of policies to reduce bureaucracy, saving up to 3.3 million hours of police time.

John Baron: Published reports confirm that under the previous Government only 11% of police officers were visible and/or available to the public at any one time. May I therefore urge my right hon. Friend to continue hacking away at the swathes of bureaucratic paperwork and release more officers for the front line?

Nick Herbert: We will do so, and I agree with my hon. Friend. We know from the inspectorate’s report that the level of availability and visibility of officers in the poorest performing forces was half that of the best. So there is room for improvement, even as resources decline, if the front line is prioritised, and the reductions in bureaucracy that we have announced will save 1,500 hours of officer time, showing how important the agenda is.

Tony Lloyd: The Minister would get support for proper cutbacks in unnecessary bureaucracy, but does he accept that some things that are described as bureaucracy are necessary protections for the public and, importantly, for serving police officers?

Nick Herbert: In relation to my previous answer, I should have said 1,500 police jobs and 3.3 million hours of officer time.
	We cannot defend the existing system on the basis that bureaucracy is important. Over recent years, there has been a huge growth in unnecessary red tape and box ticking as a consequence of the top-down direction of policing under the previous Government. We need accountable policing, but we need also to ensure that police officers are free to do the job and are trusted as professionals to exercise their judgment. That is the agenda we are pursuing.

Human Trafficking

Fiona Mactaggart: What steps the police are taking to tackle human trafficking; and if she will make a statement.

Damian Green: Police forces deal with trafficking as part of core business. Every one of the UK’s 55 police forces has had an investigator trained in running human trafficking operations, and human trafficking is now part of mandatory training for all new police officers.

Fiona Mactaggart: Does the Minister accept that targeted police operations such as Golf and Pentameter led to some 1,000 arrests under the previous Government? His human trafficking strategy has no targets for police operations, apart from reporting that the National Crime Agency will lead to better co-ordination. Does that mean we will have to wait until 2013 and after the Olympics for effective police action against trafficking?

Damian Green: No. Moving on from only targeted operations to making anti-trafficking measures part of core police business was absolutely right and something I imagine the hon. Lady’s party would have wanted to do if it had stayed in office. She will be aware, I am sure,
	of the importance of the “Blue Blindfold” awareness-raising campaign, which has now been spread to all police forces, and “Stop the Traffik” cards have been issued to 10,000 front-line neighbourhood police officers. That kind of practical action will make anti-trafficking measures by the police much more effective and widespread.

Non-emergency Telephone Number

Karl McCartney: What recent assessment she has made of the 101 non-emergency police telephone number.

Mark Menzies: What recent assessment she has made of the 101 non-emergency police telephone number.

Nick Herbert: The 101 non-emergency police number is now available in every force area in England and Wales, making it far easier for the public to contact their local police.

Karl McCartney: I thank my right hon. Friend for that answer, and of course we all welcome this reform and the opportunity for front-line officers to prioritise and concentrate on emergencies, rather than on less important incidents. Does he agree that other reforms, such as the democratisation of our police forces with police and crime commissioners, may need to go further to limit the policy-driven Association of Chief Police Officers, which is unelected, undemocratic and, in some cases, does not provide the leadership needed by officers on the front line?

Nick Herbert: We are committed to setting up a professional body for policing and to ensuring proper accountability in policing. The non-emergency number is just part of our reforms to ensure that the public have better access to the police and can hold them to account, and the link between the police and the public will be strengthened.

Mark Menzies: Last year Lancashire police announced the closure of Lytham police station in my constituency. Does the Minister agree that the 101 number will not only make it easier for my constituents to get hold of the police, but free up police resources in order to get them on the front line serving my constituents?

Nick Herbert: Yes, I agree. It is important that we make available through new technology and better systems different ways of getting hold of the police. Another example is our street-level crime mapping service, to which the Home Secretary referred. It has received more than 450 million hits, or about 45 million visits, since it was launched, and it gives the public information about their local policing teams and how to contact them.

Serious and Organised Crime

Rob Wilson: What recent progress she has made in tackling serious and organised crime.

James Brokenshire: We are establishing the National Crime Agency to spearhead our response to serious, complex and organised crime. The director general of the NCA, Keith Bristow, is driving that work. Recent progress includes the establishment of a new organised crime co-ordination centre. We have also published the first genuinely cross-governmental strategy to tackle organised crime.

Rob Wilson: I congratulate Superintendent Stuart Greenfield and his team in Reading on their recent drugs bust in Orts road, which resulted in a drugs gang with a yearly turnover of £4 million being jailed for a total of 34 years. Will my hon. Friend join me in those congratulations? Does he agree that with focus, determination and resources directed at the front line, it is possible to tackle serious and organised crime and to clear up the fear in our local communities?

James Brokenshire: I am happy to congratulate the police on that work in Reading. My hon. Friend has highlighted the fact that serious and organised crime touches communities directly. The Government have recognised that in the organised crime strategy. Our focus on ensuring that organised crime is given a much higher priority has a significant effect on the crime that we see on our streets. Our work through the National Crime Agency will make an important difference and strengthen the response further.

Paul Goggins: Does the Minister expect the switch from the Serious Organised Crime Agency to the National Crime Agency to result in an increase in the level of reclaimed criminal assets? What proportion of those proceeds of crime will he demand is returned to the communities that are most directly affected by crime?

James Brokenshire: The right hon. Gentleman highlights an important point on the proceeds of crime, about which I feel strongly as a Minister. We are already driving changes to ensure that there is a focus on this matter in policing. The Serious Organised Crime Agency already has responsibility for it. I am pleased to tell him that since we got rid of the previous Government’s target-driven approach, the performance has improved.

Topical Questions

Kevin Brennan: If she will make a statement on her departmental responsibilities.

Theresa May: Today marks the 60th anniversary of Her Majesty the Queen’s accession to the throne. I am sure that the whole House would wish to join me in sending Her Majesty our best wishes and congratulations. [Hon. Members: “Hear, hear!”] The diamond jubilee celebrations in June will be part of what promises to be an exciting year. They will be followed closely by the Olympic and Paralympic games. With less than six months to go until the Olympics, the Government remain committed to delivering a safe and secure games so that the whole country can celebrate and enjoy all these events.

Kevin Brennan: As the son of someone who would have regarded himself as an Irish republican, may I associate myself with the Home Secretary’s remarks about Her Majesty the Queen’s remarkable achievements and long reign? Earlier, the Home Secretary spoke about metal theft and the action that the Government are taking. All Members across the House have had examples of such theft in their constituencies. Why will she not support an amendment tonight in the House of Lords that would give police the authority to search and investigate all premises owned and operated by scrap metal dealers suspected of dealing in stolen property, as well as the power to close them down when criminally obtained metals are discovered?

Theresa May: As the hon. Gentleman knows, we have announced a number of measures that we will take that will have a significant impact on metal theft. We are looking at further measures that might be needed. The most immediate impact will come not only from the increased fines, but from the removal of the ability to make cash payments for scrap metal.

Paul Maynard: Will my hon. Friend tell me how much will be saved by freezing police pay and whether the Opposition support those savings?

Nick Herbert: I am happy to tell my hon. Friend that £350 million a year will be saved through the freeze on police pay. I am also happy to confirm that the shadow Home Secretary endorsed that policy 10 days ago. The Opposition are therefore effectively committed to the same savings programme as the Government.

Yvette Cooper: May I join the Home Secretary not only in congratulating, but in paying our tributes and respects to, Her Majesty the Queen on the 60th anniversary of her accession? The Home Secretary has talked a lot today about the deployment of police and about increasing the number of police officers on the front line. Will she tell the House what has happened to the number of police officers in front-line jobs since the general election?

Theresa May: The shadow Home Secretary will know full well that Her Majesty’s inspectorate of constabulary is making it clear that the proportion of officers on the front line has increased and will continue to increase. The question that she has to ask herself, given that she and her colleagues are now supporting the spending cuts that the Government have been putting through, is why they will not be clear to police officers and members of the public about the impact it will have.

Yvette Cooper: The Home Secretary has ducked the question. I do not know whether she knows the answer. She will know that we are clear that there should be a 12% reduction in the policing budget, which would protect the number of police officers, not her 20% cut, which will mean 16,000 police officers being lost.
	The Home Secretary needs to answer the question about the front line. I asked her about the number, not the proportion. The same HMIC report that she has been given includes data showing that the number of police officers in front-line jobs was cut by 4,000 in one
	year alone, following the general election. So will she now admit that her claims that she is protecting the front line are rubbish, and will she give the public a straight answer about protecting the police?

Theresa May: The right hon. Lady said that the Opposition supported a 12% cut in police budgets. They also support the pay freeze and the savings available through the outcome of the police arbitration tribunal. They said that we should accept the recommendations on those matters. The shadow policing Minister has also indicated that a significant sum of money should be taken out of overtime and shift patterns. That all adds up to a commitment by Her Majesty’s Opposition to a 20% cut in police funding—the same position as the Government. Now let us get on with talking about things like deployment rather than about the right hon. Lady’s failure to be clear with people about her position on supporting police cuts.

Steve Brine: The Minister for Immigration will be pleased to know that UK Border Agency enforcement officers were active in my constituency shortly before Christmas, removing an illegal worker from one of our city centre restaurants and sending a clear message to business owners across Hampshire. I warmly welcome the Minister’s speech last week, especially his continued determination to raise the tone of the immigration debate. What new enforcement measures is the UKBA taking to stop illegal working?

Damian Green: I am grateful to my hon. Friend for revealing how effective UKBA enforcement is in his constituency and elsewhere. Along with measures to bring down immigration and ensure that those who come to this country can contribute to it, enforcement against those here illegally continues to be important. I am happy to say that over the past year, the UKBA has conducted nearly 6,500 illegal working enforcement visits, making more than 4,000 arrests and serving more than 1,700 penalty notices to employers of illegal labour. Such tough action will send out the message that Britain is no longer a soft touch for illegal immigration.

Sheila Gilmore: The Secretary of State has already explained what an exciting summer this is going to be for Britain. Can she reassure us that, given the cuts in the staffing of the UKBA, we will not see a repeat of the problems that took place last summer?

Damian Green: I am happy to tell the hon. Lady that, as we said at the time, the initial look at the pilot measures taken over the summer actually showed that the enforcement that was going on was more effective for being more targeted. As she knows, there were clearly difficulties, which are being looked at by the chief inspector. When his report comes in, my right hon. Friend the Home Secretary will report back to the House on what he has found.

Eric Ollerenshaw: What advice did the Government receive regarding the police arbitration tribunal’s recommendation on police pay?

Nick Herbert: I can tell my hon. Friend that the Police Federation urged us to accept the recommendations of the police arbitration tribunal, and we did so. The official Opposition also urged us to do so. Once again, it is clear that although the Labour party campaigns against cuts, it supported another reduction in police spending without admitting it to police officers.

Jim Cunningham: What powers will police commissioners have?

Nick Herbert: That is set out in the Police Reform and Social Responsibility Act 2011. Police and crime commissioners will replace police authorities. They will be there to hold chief constables to account. Control and direction will remain with chief constables. It is notable that a number of Labour party figures, including some who remain Members of the House, have expressed interest in standing as police and crime commissioners despite the principled opposition to them by the Labour party.

Several hon. Members: rose —

Mr Speaker: Order. May I just say to the Minister that a lot of people are waiting to ask questions? Shorter answers and less of the repetition would be helpful.

Jo Swinson: The internet can be a great tool for broadening horizons, but as the campaign led by the hon. Member for Devizes (Claire Perry) shows, it can also pose great dangers, especially for children. Tomorrow is safer internet day. What are the Government doing to ensure that children are kept safe online?

James Brokenshire: My hon. Friend rightly highlights safer internet day, which is an important opportunity to show what steps can be taken to prevent harm online. This year’s safer internet day is on the theme of connecting generations and highlighting the role of parents. It is also an opportunity for the Child Exploitation and Online Protection Centre to launch new resources for parents. The UK Council for Child Internet Safety is also launching new standardised and simple online safety guidance for use by all internet service providers.

Huw Irranca-Davies: Last year, the Police Federation surveyed all four police authorities in Wales on the state of morale and found that 99% of its members were suffering from low morale. Is the Minister or the Secretary of State as shocked as I am that 1% were not suffering low morale under this Government’s policies?

Nick Herbert: We have already established that the Police Federation has expressed concern about policy and morale in previous years. It often does so. Police officers and staff know that difficult decisions must be taken to reduce the deficit. They are also increasingly aware that the Labour party would take exactly the same position on pay and funding.

Philip Davies: Is the Home Secretary aware that organisations using SmartWater have seen a huge reduction in the amount of metal theft? Does she agree that that kind of British forensic technology is essential not only to reduce the amount of metal theft, but to provide the police with the evidence they need to bring criminals to justice?

Theresa May: I am grateful to my hon. Friend for that contribution—he makes an extremely important and valid point. We are working with industry and others to see whether we can find other ways in which technology can help us to reduce metal theft by identifying metal and making it harder for the criminals.

Hazel Blears: Today’s report from the Select Committee on Home Affairs on the roots of violent radicalisation highlights the twin threats from Islamist fundamentalism and the far right. Much of the most successful work has been done by the Hope Not Hate campaign, which empowers communities —the moderate majority—to isolate those extremists. Such community action is vital. Does the Home Secretary therefore share my concern at the delay in the publication of the integration strategy, for which we have been waiting 11 months?

James Brokenshire: The right hon. Lady rightly highlights that communities play an essential role. The Government have recognised that extreme right-wing threats as well as Islamist-related threats need to be balanced equally within the Prevent strategy, which was why we took the decision on the change of emphasis. She mentions work on broader integration. Colleagues in the Department for Communities and Local Government will produce their strategy in that regard shortly.

Margot James: The police nationally have instructed local inspectors not to comply with routine requests from local authorities for checks on prospective tenants, which are an important tool in the battle against antisocial behaviour. Will my hon. Friend meet the Information Commissioner to see whether a solution to that problem can be found?

James Brokenshire: My hon. Friend highlights responsible tenancies. My colleague the Minister for Housing and Local Government, the right hon. Member for Welwyn Hatfield (Grant Shapps), is doing further work on that to ensure that those who commit antisocial behaviour are not the beneficiaries of social housing in inappropriate circumstances. I note my hon. Friend’s comments and will draw them to the attention of my right hon. Friend.

John Cryer: In the light of previous answers, what exactly is the relationship between police numbers and the level of crime?

Theresa May: As we have made absolutely clear, there is no simple relationship between police numbers and the level of crime. The hon. Gentleman only has to look not only at UK examples, but across the world to see examples in which police numbers have gone up and crime has gone up, or police numbers have gone down and crime has gone down. There is no simple relationship.

Tessa Munt: My constituent, Eleyda Rodrigues Torres, who is from Cuba and has been married for several years to an Englishman, has indefinite leave to remain in the UK. She made an application for a residence card last July, but catastrophic failures at the Border and Immigration Agency mean that 13 of her primary documents have been lost, including her passport, NHS letters, bank statements, with all the implications for fraud—

Mr Speaker: We need a question, in one sentence.

Tessa Munt: Will the Secretary of State meet with Eleyda and me to explain what investigation is taking place—

Damian Green: If documents have gone missing, I obviously apologise to the hon. Lady and her constituent. I will happily talk with her to solve the problem as soon as possible.

Amber Rudd: Today is international day of zero tolerance against female genital mutilation. What assessment has the Home Secretary made of progress against this violent and dreadful crime?

Theresa May: Sadly, we see too many examples of this terrible crime continuing to take place. Most people would be shocked to know how many young girls in the UK are subjected to female genital mutilation. We need to redouble our efforts to ensure that we educate young girls about the prospect of being taken abroad and having this done to them, but we also need to ensure that we educate others so that they do not wish to do this terrible act.

James Clappison: The Government are making good progress in reforming the immigration system. Perhaps that is evidenced by the fact that today the Opposition spokesperson on immigration has had something to say on absolutely everything except immigration. Will my right hon. Friend the Home Secretary keep under review the case for reforming intra-company transfers, given the level of graduate and youth unemployment?

Theresa May: My hon. Friend makes a valid point about the attitude that is being taken by the Opposition. It is difficult to hear the shadow Minister say anything about immigration. My hon. Friend will also know that we are looking at all aspects of our immigration policy and
	keep them under review as we continue to move towards our commitment to bring net migration down to the tens of thousands.

Andrew Jones: Last week, North Yorkshire police announced a future Harrogate town centre co-location with Harrogate borough council to save costs. Is the Minister pleased to see such partnership initiatives and such cross-party support for saving money?

Nick Herbert: I am grateful to my hon. Friend for raising that example. It is a good one that shows that police forces can collaborate not just with each other, as they are doing increasingly, but also with other services to provide a better service and to save money.

Jo Johnson: Will my right hon. Friend give an update on recent progress she has made in reforming the Criminal Records Bureau status checks regime?

Theresa May: I am happy to give an update. We are, of course, completely changing the way in which the Criminal Records Bureau, and the previous Independent Safeguarding Agency, operate. We are creating a new bureau that will ensure that those who need to be checked will be checked and, unlike under the previous Government, many people who are volunteers helping in their community will not have their records checked.

Several hon. Members: rose —

Mr Speaker: The hon. Member for Gloucester (Richard Graham) looks as though he is about to burst. Let us hear him.

Richard Graham: Thank you, Mr Speaker. I am delighted that the Government, the police and the Opposition have all accepted the police arbitration panel’s recommendations on the first Winsor report. My right hon. Friend knows how important it is for the morale of police in forces such as the Gloucester constabulary to see agreement reached on the second Winsor report. Does she see this as an encouraging precedent?

Theresa May: We have yet to receive Tom Winsor’s second report on police pay, terms and conditions, but I would say that the process that we followed on the first report, which showed the importance of giving all parties the opportunity to make their contribution on the decision that was finally made, is one that we would expect to follow in future.

Syria

William Hague: With permission, Mr Speaker, I will make a statement on Syria. The whole House will be appalled by the bloodshed and repression in Syria, which continues at this very moment. Over the last 11 months, more than 6,000 people have been killed. The Syrian regime has deployed snipers, tanks, artillery and mortars against civilian protestors and population centres, particularly in the cities of Homs, Idlib, Hama and Deraa. Thousands of Syrians have endured imprisonment, torture and sexual violence, including instances of the alleged rape of children, and the humanitarian position is deteriorating. It is an utterly unacceptable situation that demands a united international response.
	Last Tuesday I attended the UN Security Council debate in New York, along with Secretary Clinton, the French Foreign Minister Alain Juppé and other Ministers. We all spoke in strong support of a draft UN Security Council resolution proposed by the Kingdom of Morocco on behalf of the Arab League. The resolution called for the implementation of the Arab League plan to stop all violence in Syria from all sides and to begin a political transition.
	There was nothing in this draft resolution that could not be supported by any country seeking a peaceful end to the tragedy unfolding in Syria. It demanded an end to all violence, called for a Syrian-led political process to allow the Syrians to determine their future, and set out a path to a national unity Government and internationally supervised elections. It did not call for military intervention, and could not have been used to authorise any such action under any circumstances. It did not impose sanctions. It proposed putting the weight and authority of the United Nations Security Council behind a plan to achieve a lasting and sustainable peace in Syria.
	As I said at the Security Council, it was the Arab League’s plan, not one imposed by western nations. It was co-sponsored by nations including Turkey, Tunisia, Jordan, Kuwait, Libya, Bahrain, Qatar, Saudi Arabia, the United Arab Emirates, Egypt and Oman. Their leadership, and their strong understanding of their region, deserves our support. I pay particular tribute to the secretary-general of the Arab League and to the Prime Minister of Qatar, who travelled to New York to brief the Council and played a vital role in the extensive negotiations that followed.
	On Saturday the resolution was put to the vote. Thirteen of the 15 members of the United Nations Security Council voted in favour. Two did not: Russia and China both exercised their veto, despite extensive efforts to amend the draft resolution to address Russia’s specific concerns, and in the face of repeated appeals from Arab nations. Instead they chose to side with the Syrian regime and, implicitly, to leave the door open to further abuses. They did so while President Assad’s tanks were encircling Homs and shells were pounding the homes of Syrian civilians, killing up to 200 people, and on the 30th anniversary of the massacre in Hama.
	We regard the veto as a grave error of judgment by the Governments of China and Russia. There is no need to mince words. Russia and China have twice
	vetoed reasonable and necessary action by the United Nations Security Council. Such vetoes are a betrayal of the Syrian people. In deploying them, China and Russia have let down the Arab League, increased the likelihood of what they wish to avoid in Syria—civil war—and placed themselves on the wrong side of Arab and international opinion.
	By contrast, I thank the other members of the Security Council for the principled stand that they took, particularly the non-permanent members: Morocco, Azerbaijan, Colombia, Germany, Guatemala, India, Pakistan, Portugal, South Africa and Togo, all of which voted in favour of the resolution. Pakistan’s representative to the council spoke for all of us when he said:
	“This resolution should not die; by being active and engaged, we should give hope to those who are expecting it from us”.
	The Syrian regime might have drawn comfort from events at the UN Security Council, but we will do everything we can to make sure that that comfort is short-lived. It is a doomed regime as well as a murdering one. There is no way for it to recover its credibility, internationally or with its own people.
	The UN Security Council’s failure to agree a resolution does not signal the end of our efforts to end the violence in Syria. I will set out how we will now proceed. First, we will continue our strong support for the Arab League. Earlier this afternoon I spoke to the secretary-general of the Arab League, Nabil El Araby, as well as the Foreign Minister of Jordan. I welcomed and encouraged the proposal to appoint a special envoy of the Arab League, and I commended the Arab League’s leadership and action so far.
	Arab Foreign Ministers will meet this weekend to consider their options. The secretary-general was clear about the urgency of the situation, the Arab world’s continued determination to act, and the need to step up their efforts. I told him that the Arab League would have our complete support.
	Secondly, we will seek to widen the international coalition of nations seeking a peaceful and lasting resolution in Syria. We welcome the concept of a new Arab-led group of Friends of Syria, which I discussed with the Prime Minister of Qatar last Tuesday in New York. The aim of such a group will be to demonstrate the strength of international support for the people of Syria and their legitimate demands, to co-ordinate intensified diplomatic and economic pressure on the regime, and to engage with Syrian opposition groups committed to a democratic future for the country. Britain will be a highly active member in setting up such a group with the broadest possible international support.
	Thirdly, we will intensify our contact with members of the Syrian opposition. The House will recall that in November I appointed Frances Guy as an ambassador-level envoy to lead our discussions with them. We will continue to urge the Syrian opposition to come together and to agree a common statement of commitment to democracy, human rights and the protection of all Syria’s minorities.
	Fourthly, we will maintain our strong focus at the United Nations, undeterred by Saturday’s vote, and we will continue to raise the situation in Syria at the UN Security Council. We will consider with other nations a resolution of the UN General Assembly, and, despite our disagreement with Russia and China, we will continue to discuss with them any possibility of an agreed but meaningful way forward.
	Fifthly, we will increase pressure through the European Union, following the discussions that I had in New York with Ministers from France, Portugal and Germany. We have already agreed 11 rounds of EU sanctions, and will hope to agree further measures at the Foreign Affairs Council on 27 February.
	Sixthly, we will work with others to ensure that those responsible for crimes in Syria are held to account. At the UN Human Rights Council meeting in Geneva in March we will work to ensure the strongest possible mandate to scrutinise human rights violations in Syria, so that those responsible know that there will be a day of reckoning and that they will be held to account.
	Seventhly, we will use our remaining channels to the Syrian regime to make clear our abhorrence of violence that is utterly unacceptable to the civilised world. The Syrian ambassador to London was today summoned to the Foreign Office to receive this message. Despite our deteriorating relations with the Syrian Government, we remain committed to ensuring the safety of its embassy and staff in London, and we expect the Syrian authorities to provide the same protection to our embassy in Damascus.
	In parallel, I have today recalled to London our ambassador from Damascus for consultations. He and his team work in extremely difficult conditions to ensure that we have an accurate picture of what is happening in Syria. I hope that the House will join me in paying full tribute to them and their families. Their safety and security is always prominent in our considerations.
	The human suffering in Syria is already unimaginable, and is in grave danger of escalating further. The position taken by Russia and China has, regrettably, made this more likely, but the Government, the House, our country and our allies will not forget the people of Syria. We will redouble our efforts to put pressure on this appalling regime and to stop this indefensible violence.

Douglas Alexander: I welcome this opportunity for the House to discuss the situation in Syria, and I am grateful that the Foreign Secretary agreed to make a statement this afternoon. It was made in the dark shadow of the brutal slaughter continuing even today, with news of scores more people murdered in Homs in the last 24 hours alone.
	Let us all be clear that responsibility for the deaths of these innocent people lies at the door of President Assad and his murderous regime. There is clear agreement across the House and much of the international community that the regime has no future, and that Assad must go. The tragedy is that, notwithstanding that fact, the slaughter continues. For the international community, condemnation is not enough; comprehensive diplomatic efforts are required, which is why the recent failure to reach agreement in the Security Council, of which the Foreign Secretary has just spoken, is such a stain on the conscience of the world. I therefore welcome the points that he made setting out the next steps that the British Government will take to seek to resolve this grave crisis.
	I have not, in recent days, made any criticism of the Government over their actions to date, and I will not do so in this response. Rather, in a spirit of shared abhorrence and determination, I want to ask the Foreign Secretary a few questions. I share his disappointment at the stance
	taken by Russia and China. Will he set out more fully to the House what steps are now being taken to convince them of the need for international consensus? In particular, will he tell the House what conversations he has had with Sergei Lavrov since the Security Council vote? In advance of the Russian Foreign Minister’s meeting in Damascus tomorrow with President Assad, has the Foreign Secretary sought or received any assurances that in that meeting the Russian Foreign Minister will at least reflect the wider will of the international community that Assad must go?
	I welcome the emphasis that the Foreign Secretary has placed on the work of the Arab League in this crisis, and the prospect of a special envoy being appointed, and indeed a Friends of Syria Group being established. Will he now press for a joint Arab League-European Union summit to be held in the weeks ahead, in order to co-ordinate best the vital steps that now need to be taken? Can the Foreign Secretary give any more information about the level of ambition he is aiming for at the meeting on 27 February, where possible further sanctions will be discussed? Separately, will he inform the House how recently he has spoken to his Turkish counterpart about the steps that Turkey could—and we hope would—be taking to increase further peaceful pressure on Assad?
	In his statement, the Foreign Secretary mentioned the human suffering now being endured in Syria. There are reports of even more people fleeing across the borders of Syria into neighbouring countries, and refugee camps set up along the borders are struggling to meet the increasing demands. Can the Foreign Secretary say what conversations he has held with the Secretary of State for International Development on this matter, and confirm to the House who in Government is leading on the humanitarian response to the crisis? Have the Government requested a meeting of the Council of EU Development Ministers to ensure a co-ordinated response to the growing threat of a full-blown humanitarian crisis?
	I wrote to the Foreign Secretary at the weekend about the attack on the Syrian embassy in London. While we share an undoubted revulsion at the present actions of the Assad regime, I am sure that the Government would agree that the protection of foreign embassies on our soil is a basic principle of international law that must be upheld. Let me take this opportunity to praise the bravery of the officers on duty outside the Syrian embassy this weekend. Our thoughts are with the family and friends of the officers who were hospitalised. We wish them a speedy recovery. Will the Foreign Secretary outline what discussions took place between him, the Home Secretary and the Metropolitan police ahead of 3 February about protecting the Syrian embassy, in the light of reports of expected protests and attack? Were any specific measures taken or contingency plans put in place, in the light of the reports of Syrian opposition forces calling on Syrians living abroad to protest outside their embassies?
	Shortly before today’s statement, word reached us that the US had closed its embassy in Damascus and withdrawn all diplomatic staff from Syria. The Foreign Secretary made it clear in his statement that our ambassador in Damascus had been recalled for talks. Will he outline to the House what the British Government’s assessment is of the utility of the existing diplomatic channels, in the light of the continuing violence?
	We welcome the steps that the Government have already taken to try to increase the pressure on, and deepen the isolation of, President Assad and the Syrian authorities. However, I fear that this weekend’s Security Council veto has been taken as a green light for sustained slaughter by the Assad regime. That is why efforts must now be redoubled to end the violence and bring a peaceful resolution to the past 11 months of bloodshed.

William Hague: I am grateful to the right hon. Gentleman, who has referred, rightly, to the bloodshed over the last 24 hours and the agreement that exists across the House—and, indeed, across so much of the international community—that the regime in Syria has no future. He has spoken, as I have, of the need for comprehensive diplomatic efforts. He has no criticism of what the Government have done so far, and obviously I am grateful for that.
	The right hon. Gentleman asked whether there should be an EU-Arab League summit. That is indeed one of the possibilities for bringing together a wider group of nations to address the crisis, but I think it would be preferable to have a meeting that went beyond the European Union and the Arab League, as there are also African nations that have been supportive at the Security Council, as well as Latin American nations. It is therefore probably best to have as inclusive an international gathering and group as possible, going beyond Europe and the Arab world. That would be my preference, and we are in discussion with the Arab League and others about that.
	The right hon. Gentleman asked about the level of ambition for the EU meeting on 27 February. Most of the measures that we can take in relation to Syria we have now taken. We have had 11 rounds of sanctions, including a complete oil embargo, which we introduced some months ago. We have placed sanctions on well over 100 individuals and entities. There will be further tightening up of the sanctions that we can introduce, but I stress that most of the sanctions that we can introduce we already have introduced. I do not want to exaggerate what we will be able to do on 27 February,
	The right hon. Gentleman asked about contact with some of the other Foreign Ministers whom I did not mention in my statement. I have very regular consultations with the Turkish Foreign Minister, Ahmet Davutoglu, about this matter. Last Tuesday I spoke to him from New York while I was there; that was my most recent consultation with him. Turkey was a co-sponsor of the resolution, and I expect it to be a very active participant in the new informal international grouping that we expect to be formed.
	As for the steps to be taken with Russia and China, we have daily conversations with them at the Security Council, and I have had many discussions with my Russian counterpart, Sergei Lavrov, about the situation in Syria. Although I will not have spoken to him between the Security Council vote and his visit tomorrow, I shall want to speak to him after his visit. He has been speaking to the secretary-general of the Arab League, so I am well in touch with what he has in mind for his visit, but clearly the Russians are on a different track here from the rest of us, so it has been difficult to work with them on such contacts with Syria. My right hon. Friend the International Development Secretary gives
	regular attention to the matter, and Britain has contributed funds to the International Committee of the Red Cross to help people who have been displaced. My right hon. Friend is, of course, ready to work with other countries on any further developments in that regard.
	The right hon. Gentleman correctly praised the Metropolitan police, who have been involved in protecting the Syrian embassy. There are regular meetings, including a monthly review meeting between the Home Office and the Foreign Office, on the protection of all embassies. There are well-laid contingency plans in the case of the Syrian embassy, which were put into operation this weekend. There were about 150 protesters there on Saturday, three of whom, by climbing up scaffolding, managed to enter a first-floor window of the embassy. The police presence was further reinforced, and has continued. It will be reviewed today, but I think that the police did a very good job in protecting the embassy, and the normal channels between the Foreign Office and the Home Office are working well.
	The right hon. Gentleman asked for an assessment of the utility of our diplomatic channels. I was discussing that with our ambassador in Damascus on the phone just before I came into the Chamber. He has heard—as the House will have heard—the announcement that the American embassy has been closed. We have been aware for some days that it would close today. That was done primarily on security grounds. Our embassy premises are in a different situation, and their security is slightly easier to maintain. We will review all options. As I have said, we have recalled our ambassador, and clearly we are doing that so that we can review all options.
	I should prefer us to act in concert with a wide number of other nations if we make a further change to our diplomatic relations with Syria, so we will stay close to our partners in the Arab world and the European Union. I am not ruling anything out, but the House will understand that there are advantages in maintaining an embassy for as long as we can, such as being able to understand the situation on the ground, being able to discuss the situation with a variety of people in Syria, and being able to impress on some members of the regime the gravity of the situation that they have got themselves into. I am not, at the moment, announcing any closure of our embassy, but we will keep the position under close review.

Peter Tapsell: I am certain that the Foreign Secretary needs no point of information from me, but may I nevertheless urge him to bear these facts in mind? Inside Syria—which, as he knows very well, contains an immensely complex ethnic and religious group of people—there has lived for many generations a large Christian community, now estimated to number over 350,000. Its archbishop has publicly said that if the present regime is overthrown and replaced —as it almost certainly would be—by a regime of a different denomination, that community might suffer catastrophe, as the Christian community in Iraq did after the overthrow of Saddam Hussein.

William Hague: I cannot imagine ever not needing a point of information from my right hon. Friend. He has a deep knowledge of the region, and he is right to point out that there remains a thriving Christian presence in Syria. We have to consider the fact that the regime there
	is now doomed, one way or the other. It is a question not of whether, but of how and when, it will fall. That highlights the importance of our work with the Syrian opposition. I have met two opposition groups, and the Under-Secretary of State for Foreign and Commonwealth Affairs, my hon. Friend the Member for North East Bedfordshire (Alistair Burt) has had many meetings with them. We have impressed on them that if they are to form a future Government in Syria, they must recognise the importance of the protection of minorities, including Christians. We need to look to a future Government to give that protection, as this regime has no future.

Tony Lloyd: During the course of the Foreign Secretary’s conversations in New York, was the subject of the International Criminal Court raised? I understand that it is still necessary to give the present regime an exit strategy, but its crimes now warrant that level of legal sanction.

William Hague: They are very serious crimes, and that is a wholly legitimate question. The hon. Gentleman will know, however, that when a country is not a signatory to the International Criminal Court—as Syria is not—the United Nations Security Council must put forward a reference to the prosecutor of the ICC. Given the difficulties of passing a moderate and sensible plan put forward by the Arab League, it will be even more difficult—indeed, currently impossible—to pass a resolution seeking a reference to the court. That is why I explained in my statement that we will make strong representations at the meeting of the United Nations Human Rights Council, where we will press for the appointment of a special rapporteur and the establishment of special investigations into the human rights situation in Syria, as an alternative track.

Malcolm Rifkind: Will the Foreign Secretary consider speaking to the Russian Foreign Minister before Mr Lavrov goes to Damascus tomorrow, and reminding him of the serious damage that Russia is doing to its own long-term interests in the middle east? If he does speak to him, will he draw to his attention the statement that has been put out by the opposition Syrian National Council today, in which it accuses Russia and China of being
	“responsible for the escalating acts of killing”?
	It goes on to say that their use of the veto in the Security Council was
	“tantamount to a licence to kill with impunity”.
	Will not Russia bear a heavy responsibility if Syria now descends into a bloody and protracted civil war?

William Hague: I think that that is true; I agree with my right hon. and learned Friend. This is why I have used strong language of my own, at the weekend and in my statement today. I believe that the vetoes are a betrayal of the Syrian people: they make Russia and China increasingly responsible for the situation in Syria and for some of the slaughter that is taking place there. They must consider—on the basis of their own national interest, apart from anything else—whether it is a sensible policy to carry on in this way. They are turning their backs on the Arab world, which will reduce their influence in the middle east. It is my belief that they are backing a regime that is, as I have said, doomed in any case. As I
	said to the shadow Foreign Secretary, the Russians were left in no doubt of our well-expressed views after I had spoken to Mr Lavrov. They will also be conscious of the views being expressed in the House this afternoon.

Chris Bryant: With journalists being murdered with impunity and elections being rigged, is not Russia rapidly turning itself into a pariah state, as the right hon. and learned Member for Kensington (Sir Malcolm Rifkind) just said? Would this not be a good opportunity for the Conservative party, which sits in the same grouping as Mr Putin’s party in the European Council, to part company with that grouping?

William Hague: I do not think that I shall get into party matters during this Government statement. We emphatically disagree with Russia, and we are appalled at the veto in the Security Council. None the less, Russia is a member of the Security Council and it has a veto. We will therefore continue to discuss the way forward with Russia, just as we will with all other nations.

Menzies Campbell: Is it not clear that the exercise of the veto by any permanent member of the Security Council always comes at a cost? The shameful events of last Saturday will be no exception to this principle. In this case, is not the immediate cost being paid in the broken bodies of children wrapped in burial sheets and the anguish of their parents? My right hon. Friend clearly needs no urging about the urgency with which he should fulfil the objectives he has properly set out, but may I say that he is most well placed when he takes the view that there should be the widest possible coalition of the willing throughout the world—as, indeed, the vote in the Security Council emphasised—so that what the United Nations was unable to do might be achieved on a much broader basis through the maintenance of pressure on Syria?

William Hague: I absolutely agree with my right hon. Friend, as he could gather from my earlier replies. This is why the international coalition should include nations well beyond Europe and the Arab world. I discussed the matter this morning, for instance, with the Foreign Minister of Australia, which is keen to be a participant. Across the Commonwealth as well as across the Arab and European communities, there will be a demand to be involved in that wide coalition. We will pursue that very energetically in the hours and days ahead.

Gisela Stuart: One country singularly absent from the Foreign Secretary’s statement was Iran. Will he say a little more about the extent to which he thinks the Assad regime feels supported and receives succour from the Iranians?

William Hague: The Assad regime certainly feels that. As we have discussed before, Iran has certainly given active support to the Syrian regime in the form of equipment as well as advice on how to deal with civil disorder and rebellion. There may be many other ways, of which we are unaware, in which the Iranian regime supports the Syrian regime. This is a classic piece of hypocrisy. The Iranians have supported revolution elsewhere in the Arab world, particularly in Egypt and Tunisia; they supported disorder in those countries, but they are against
	it in Syria. I think that the whole Arab world sees through that, which further widens the current widening separation between Iran and its Arab neighbours.

Richard Ottaway: I share the Foreign Secretary’s approach and urge him to maintain the political, economic and diplomatic pressure that he set out. The third step that he announced was that he would intensify contact with members of the Syrian opposition. Will he elaborate a little on that: is it on a multilateral or bilateral basis, and is there any limit to the level of resources that he is able to commit to helping that opposition in Syria?

William Hague: That is bilateral and multilateral. I have already mentioned some of the bilateral contact we have had and the fact that we have an ambassador-level representative dealing with the opposition. I also believe that one of the roles for the wider international coalition would be to meet the various groups of the Syrian opposition, which I think would be a catalyst for the opposition to propose their plans, to make clear commitments to a democratic future for their country and to set out their commitment to human rights and, indeed, the protection of minorities. It is also important for them to try to come together, since one of the challenges for the opposition is to develop a single platform and a single agreed body for taking forward their concerns. There is no limit on what resources we can provide. We have already provided training in the documentation of human rights abuses, in strategic communications and so forth. We may be able to do more in the future.

Denis MacShane: The Foreign Secretary cannot be faulted in the handling of this crisis and, if I may say so, the Under-Secretary, the hon. Member for North East Bedfordshire (Alistair Burt), was very impressive on the BBC yesterday. However, before we go down the road of arming the opposition, should we not recall what happened when the west armed the mujaheddin and they turned into the Taliban and al-Qaeda? More broadly, this is the fourth major intervention in a majority Muslim country—and Iraq, Afghanistan and Libya are not happy examples to follow. Do we not need a broader strategic approach to this region of crisis?

William Hague: Well, I think that is what we have. I am grateful to the right hon. Gentleman for saying that he could not fault my colleague and me, although there was then a “but.” Let me reassure him further, therefore: we are not contemplating arming anybody. Indeed, one of the things we stressed in our meetings with the Syrian opposition was that they should remain peaceful. We have not been in contact with the Free Syrian Army, which is engaged in a different kind of struggle with the Syrian authorities. I would not classify this as an intervention, therefore. We are supporting the work of the Arab League, we are assembling the widest possible international coalition, and we are not calling for military action or intervention, so I think the right hon. Gentleman can be reassured and continue to be as effusively supportive as he was in the first part of his question.

Nicholas Soames: I applaud the Foreign Secretary for the vigorous and energetic way in which he and his colleagues are attempting to deal with this matter, and I join in his tribute to the staunchness of our diplomatic staff in Damascus. What does he think animates the Chinese Government to support these butchers?

William Hague: That is an interesting question. As far as we could see at the Security Council negotiations last Friday, China had no easily identifiable objection to the draft resolution. Indeed, when it came to the vote the Chinese permanent representative was surrounded by Arab representatives urging him therefore to vote for the resolution. As it turned out however, his instructions were evidently to vote to veto the resolution along with Russia. It seemed that the desire to act with Russia on the Security Council outweighed any other consideration. I think that is a mistake on the part of China. We have a regular and full strategic dialogue with China, and I will certainly want to pursue the question of this decision vigorously in our next strategic dialogue, because I do not think it is in the interests of China; nor do I think it is living up to the full responsibilities of permanent membership of the Security Council.

Ann Clwyd: The Foreign Secretary has talked about the importance of Turkey. In his discussion with the Foreign Secretary of Turkey, was there any talk about setting up safe havens near the Turkish border, which I believe the Syrian opposition have asked for?

William Hague: This idea has been floated, although I think more in the media than by any of the Governments concerned. It can, of course, be an appealing idea when people are in such distress and suffering so much, but one then has to consider how safe havens would be created and how they would subsequently be policed. We know from experience in the Balkans in the 1990s that safe havens that prove not really to be safe are one of the worst things we can create. The creation of true safe havens inside Syrian territory would, in effect, require military intervention in Syria. That is not authorised by the UN Security Council and would require a massive military operation. The Turkish Foreign Minister was not proposing that, and that was not part of our discussion last week.

Edward Leigh: While Assad’s actions are evil and those of the Russians and Chinese are woeful—my right hon. Friend is entirely correct on that—some of us warned during the Libyan intervention that we were in danger of playing into their hands and providing them with an alibi because we did not stick strictly to humanitarian action, such as when we were pursuing Gaddafi in the last hours of his life before he was executed by our allies. We are where we are, however, so where do we go from here? The fact is that the Chinese are impervious to grandstanding. The Foreign Secretary has been rather brief on the quiet diplomacy he is now going to engage in with them to get them to sign up to a resolution that, in terms, prohibits any repetition of the kind of action that took place in Libya.

William Hague: I disagree with my hon. Friend, in that I do not think that what happened in Libya provides an alibi; after all, there were countries on the Security Council, such as India, which did not vote for resolution 1973 on Libya, and South Africa, which did vote for it but was then very critical of its implementation, that were perfectly happy to vote on Saturday for this resolution because it is entirely different from what we contemplated and wanted in Libya. We are not calling for military intervention—these are different circumstances—so I do not think that that is an adequate defence for Russia and China.
	My hon. Friend said that I was quiet on quiet diplomacy, but it is in the nature of quiet diplomacy that it is not pursued noisily. Of course, as I said in my statement, we will continue to discuss with Russia and China the way forward. We will do so in a rather vigorous way, but we will do so continuing to seek agreement at the UN Security Council. We will be very busy with that over the coming days and weeks.

Caroline Lucas: Tunisia, the first Arab country to be liberated from a despot in the Arab spring, is expelling its Syrian ambassador and de-recognising the murderous and criminal Assad regime. The Syrian National Council has called on other countries to follow suit, so will the British Government be considering that?

William Hague: As I mentioned, I do not rule that out. If we were to do that, I would like us to act in concert with other nations. Therefore, what other nations do is a factor, and we will keep in close consultation with our European and Arab partners on this. But there are considerations to set against that and reasons to maintain an embassy, if possible, which I also mentioned earlier. So this is about a balance between those considerations.

Julian Brazier: A very dear friend of mine and his five-year-old son were butchered by the Assad regime in the days when it controlled Lebanon, so may I both commend everything that my right hon. Friend is doing and urge him to take a particular interest in what is going on in that country, which the Assad regime continues to try to destabilise, both through its own proxies and through Iranian ones, such as Hezbollah and Amal?

William Hague: Absolutely; we always take a close interest in what is happening in Lebanon, and Syria has indeed been, a great deal of the time, a malign influence in events there. In addition, events in Lebanon and what may happen in the future there are an important consideration in how we handle this crisis in Syria—this is one reason why it is quite different from the Libyan crisis, for instance. So my hon. Friend is right to point out the horrors of what has happened before and I am very conscious of the point that he makes.

Mike Gapes: I welcome and endorse the Foreign Secretary’s remarks about taking action through the European Union, through the UN General Assembly and Human Rights Council and with the Friends of Syria group, but one organisation that he did not mention was NATO. Is it not time to have a discussion in the North Atlantic Council—
	including Turkey—about having some kind of no-fly zone, comparable with what was put in place to save the Kurds 11 years ago, over the northern part of Syria?

William Hague: I do not think that it is. I say so, first, because if NATO began planning for different eventualities in Syria, that would weaken rather than unite the international coalition. A no-fly zone would also require authorisation from the UN Security Council, and clearly that would not be obtained at the moment. In addition, although there are reports of Syrian aircraft being involved in the latest events, this is not the prime means of repression, so although a no-fly zone is an easy thing to call for, there is a danger that it would give the illusion of security when the prime means of repression of the civilian population is by tanks and troops on the ground.

Bob Russell: I welcome the Foreign Secretary’s warm words about the countries of the Arab League. With the eyes of the world on Syria, will he give me his personal assurance that he will not close his eyes to what is happening next door in Israel, where United Nations resolutions and international law are being breached against the Palestinian people?

William Hague: My hon. Friend knows—again, we have discussed this in the House many times—the position on this. We may be getting a little wide of the statement, but of course we have condemned violence in the occupied territories and indeed the expansion of settlements in the occupied territories, which are illegal and on occupied land.

Mr Speaker: Order. We are grateful to the Foreign Secretary for dealing with that point. Perhaps we can now keep the statement exchanges to the subject matter. I know that the hon. Member for Colchester (Sir Bob Russell) is now a Knight, but we must stick to what is right and that is the content of the statement.

Luciana Berger: What is the Foreign Secretary’s assessment of the prospects of Russia agreeing to impose an arms embargo on Syria, given that Russia remains one of Syria’s principal arms suppliers?

William Hague: There is not much prospect at the moment of Russia agreeing to an arms embargo—that is the straight answer. Russia continues to sell arms to the regime. Russia has many close interests allied to those of the Assad regime and has a naval base there. Syria has been an important customer for Russian arms, and that is no doubt one of the factors behind Russia’s defence of the Assad regime and its veto at the UN Security Council. So, the prospect of Russia agreeing at the moment is very small.

Roger Gale: Given the cynicism of Russia’s veto of the draft resolution at the weekend, and the bloodshed since, will my right hon. Friend consider calling in the Russian ambassador and gently suggesting to him that Russia’s failure to support human rights in Syria might be construed by some as incompatible with Russia’s membership of the Council of Europe?

William Hague: I will give consideration to all the points that are being raised about Russia—that is, I think, the best thing for me to say—and I will ensure that the force of the views in the House of Commons about Russia’s veto is well understood by the Russian embassy. It will be understood there, anyway. My first preference in how we now conduct our discussions with Russia is for me to do so directly with the Russian Foreign Minister, as well as via any contact we may have with the ambassador.

David Winnick: Although the action of Russia and China is completely inexcusable, and no one in this House has tried to defend or justify it in any way, may I take the Foreign Secretary back to a point made earlier? Is he aware that the resolution on Libya, which was brought forward to stop slaughter, was so extended in bringing about regime change that it has inevitably played right into the hands of Russia and China, who have done what they have done and vetoed the UN Security Council resolution? Both countries have, of course, a pretty poor record when it comes to their own human rights.

William Hague: In my view, the resolution on Libya—resolution 1973—was faithfully implemented. If I remember rightly, the hon. Gentleman voted, in the end, for our action in Libya.

David Winnick: indicated  assent .

William Hague: Yes, he did. So, we are united in agreeing with that resolution. I do not think that it provides an excuse for Russia and China, for the reasons I gave earlier to my hon. Friend the Member for Gainsborough (Mr Leigh). Many other nations on the Security Council disapproved of what we did in Libya but voted for this resolution on Syria.

Mark Pritchard: Notwithstanding the Foreign Secretary’s earlier comments on the International Criminal Court, if there is a subsequent UN resolution on referring President Assad and his regime to the UN and the ICC, does he agree that the timing of that will be very important? We know that many dictators, if they feel they have nothing to lose and nowhere to run, are likely to dig in, with more atrocities than there perhaps would have been. The timing is critical.

William Hague: Yes. My hon. Friend makes a valid and legitimate point. In any case, it is not possible at the moment to refer this to the prosecutor of the ICC. However, I think that the longer this goes on and the greater the atrocities committed, the more determined the world will be to find a way to bring to account and to justice those responsible. That should weigh heavily on those who are now participating in the atrocities of this regime.

Seema Malhotra: Will the Secretary of State update the House on measures being taken to ensure the safety of British citizens in Syria?

William Hague: For a long time—for many months—we have said that British nationals should not travel to Syria and that those who are there should leave. Also,
	some weeks ago, when we reduced the staff of our embassy to the minimum level possible to maintain it, we made it clear that we were below the level at which we could conduct an evacuation of any remaining British nationals. We have made the position abundantly clear, and there should not now be British nationals in Syria. Some people who are dual nationals or are married to people in Syria will of course have remained, and whenever they are in difficult circumstances we will do our best to assist them, but we have made the position starkly clear.

Bob Stewart: Having sat in the middle of a so-called protected area that was totally unprotected, may I re-emphasise to the House something the Foreign Secretary has said? Any protected area requires the presence of people on the ground with the ability to keep it protected, and if this talk of a protected area continues, we will have to think about how that can be done. At the moment, it certainly cannot be done by the British.

William Hague: My hon. Friend speaks with deep experience of these matters. Certainly, any future discussion about safe havens or humanitarian corridors must be accompanied by the will, authority and full means to make sure that they truly would be safe and humanitarian, rather than leaving people in a very difficult situation.

Chi Onwurah: On Friday, I attended a fundraiser in Newcastle at which over £30,000 was raised to provide humanitarian assistance to those terrorised by the regime. Many there expressed real fear about returning to Syria, especially now that they have shown their support for democracy and freedom. Can the Secretary of State assure me that he is working with his colleagues in the Home Office to ensure that no Syrians are forced to return to Syria from the UK at the moment?

William Hague: I congratulate the hon. Lady and her constituents on the funds they have been raising, and I shall draw her point to the attention of my colleague the Home Secretary. We have rigorous rules on these matters in terms of giving asylum to people and not returning them to countries that are in a state of great disorder. I will check on the point she raises.

Conor Burns: I wish the Foreign Secretary well in his ongoing discussions with China, for if the use of the veto in these circumstances is a foretaste of things to come, it does not bode well for the future effectiveness of the Security Council. Returning to the Russian Foreign Minister’s visit tomorrow, regardless of the position that Russia is taking, does my right hon. Friend agree that if the Russian Foreign Minister is properly to convey the mood of the UN, the international community and the Arab League, he will tell President Assad that his days are numbered and that the only question is how much more blood will be spilled before he goes?

William Hague: I would love it if that were the message conveyed by Sergei Lavrov when he goes tomorrow, and my hon. Friend is quite right that that is what should be conveyed. However, I think Russia’s approach remains different from that, as we saw with its veto. It is still
	acting to protect the regime and standing by a long-standing ally despite everything that has happened. As I have said, we will underline to Russia’s representatives, including the Foreign Minister, the depth and strength of opinion in this country, as indeed they will hear from the Arab League and many other nations around the world.

Paul Goggins: What assessment has the Foreign Secretary made of reports over the weekend that Abu Musab al-Suri, who until his capture in 2005 was a dangerously active terrorist, has been freed by the Assad regime in an apparent warning to the United States and the United Kingdom? If that is true, will it not be yet further evidence of the murderous activity of the Syrian Government?

William Hague: Yes, it would. I am awaiting reliable information about that. Clearly, the announcement was not designed to be helpful in any way and it is further evidence of what the right hon. Gentleman refers to, but if the Syrian regime honestly thinks that we in the United Nations or anywhere else are going to change our approach because of such announcements or the release of any reprehensible criminal, it is seriously mistaken.

Jo Swinson: Russia is inflicting a double blow on the Syrian people through its UN veto and by continuing the $1.5 billion of arms sales to Assad’s regime, which enables the killing and maiming to continue. If the moral and humanitarian argument cannot get through, will the Foreign Secretary emphasise to his Russian counterpart that it is not in Russia’s strategic and economic interests, with its key trading partners in the middle east such as the United Arab Emirates and Saudi Arabia, to act as a roadblock to the protection of the Syrian people?

William Hague: Yes, I absolutely agree. This is an important consideration for the Russian authorities and it is not in Russia’s national interests to take the position it has taken. There will be a future Government in Syria who will remember what Russia has done. Its actions are causing outrage in the Arab world, which is deeply frustrated with Russia’s position, as the secretary-general of the Arab League said to me earlier this afternoon, so we will certainly employ the arguments cited by my hon. Friend.

Jeremy Corbyn: The killings, murders and disorder in Syria are obviously dreadful and must be condemned. Notwithstanding the Foreign Secretary’s understandable anger with Russia at present, does he not think that it would be appropriate to have further negotiations with the Russian Foreign Minister and the Government of Iran, who are a near neighbour and in whose interests it cannot be for further disorder to spread to their country? Also, is he confident of the democratic and inclusive credentials of all the Syrian opposition? Surely we can learn from the example, given by many colleagues, of what happened in Libya, where in some quarters the abuse of human rights unfortunately continues, despite assurances given by the opposition there before the intervention.

William Hague: We shall certainly continue to have discussions with Russia, as I have mentioned many times, but I do not think that discussions with Iran on this subject would be productive at the moment. The views of members of the Syrian opposition vary greatly and, indeed, at least three different organisations could be classified as the Syrian opposition. That is why I stress the need for them to come to international gatherings with a clear statement of democratic and inclusive principles, including the protection of minorities in Syria. I think that they will have greater support in the world if they can articulate those things clearly and set out a clear vision for the future of their country.

Claire Perry: It is always the innocent who suffer in these situations, and anyone who has seen or heard of the collateral damage being inflicted on the innocent women and children in Homs cannot fail to think that this Sino-Russian veto is disgraceful and disgusting. Is there any way that we can use our remaining infrastructure and resources in Syria, or those of our allies, to provide humanitarian or medical assistance to these helpless victims?

William Hague: We are down to the smallest level of representation we can have that is consistent with diplomatic relations. Our staff are therefore able to maintain an embassy, but it is not easy for them to travel around the country, let alone deliver practical assistance to people, so we cannot do that with the remaining diplomatic staff. We support the work of the ICRC in the region, as I have said, so we will have to deliver any assistance that way.

Julian Lewis: While the immediate priority must obviously be to maximise pressure to put an end to the slaughter, what longer-term assessments have been made about the likely complexion of any successor regime to the dictatorship?

William Hague: As I said in answer to the hon. Member for Islington North (Jeremy Corbyn), there are many shades of opinion among the Syrian opposition. When I met members of the Syrian National Council, they were very clear about their commitment to an open and democratic society and to the protection of minorities. I have no reason to doubt them on that, but there will be many influences at work, so it is very difficult to make a prediction or give an accurate answer to my hon. Friend’s question. All I can say is that we will continue to urge the various opposition groups to adopt the open and democratic principles in which we, too, believe.

Dan Byles: May I press the Foreign Secretary on the issue of UK nationals and those holding dual nationality? What assessment has he made of the number of people falling into those categories, and what discussions has he had with those of our allies who, like us, are maintaining a diplomatic presence with regard to mutual aid for one another’s citizens should the situation deteriorate?

William Hague: Well, it is in any case the arrangement within the European Union that countries will provide assistance to each others’ citizens if one is unable to do so, but of course the embassies of other nations are also being slimmed down, so it would be wrong for people to
	rely on that. I think that they should take our advice very seriously. For months we have said, “Do not stay in Syria. Do not go to Syria.” I cannot make it clearer than that. Rather than expect practical assistance, they should leave, and leave now.

Phillip Lee: I have had the privilege of visiting Syria twice in my life: once in 1998 with a backpack on my back, and last year on a delegation ably led by my right hon. Friend the Member for Mid Sussex (Nicholas Soames). I was struck by the stark difference in access to news media within the country between the two visits. Does the Foreign Secretary agree that our foreign policy, and indeed that of all our partners abroad, should reflect that changed media environment and that the sooner the Russian and Chinese Governments understand and respect that, the better?

William Hague: Yes, I very much agree. People have access to media reports, particularly those carried by Arab satellite television channels, and what we say on our televisions and, indeed, in this House is heard and understood by many people in Syria. That is one reason why it is not possible to say to people in Syria, “There is no problem,” and that the Syrian Government are doing everything they can. The people can see that the Syrian Government are not acting in the interests of a peaceful transition in Syria, so we will continue to communicate, in many ways directly, with the people of Syria and the rest of the Arab world. There is a lesson in that for Russia and China, as my hon. Friend says.

Stewart Jackson: The actions of this despotic regime are merely the culmination of 30 years of human rights abuses under both Assad regimes, as we know. To return to the question put to the Foreign Secretary by my hon. Friend the Member for Croydon South (Richard Ottaway), we welcome the appointment of a special envoy to the Syrian opposition, but will it necessarily lead to the establishment of a contact group with the Syrian National Council, the Free Syrian Army and other individuals in lieu of the establishment of a free, democratic Government?

William Hague: We will have to see how the opposition groups develop. We are urging them to come together, but I stress that our contact has been with those advocating peaceful action. We have not had contact with the Free Syrian Army, which is in a different position and advocates a different course, but we want those groups to come together, and we will want them to be involved and to bring their ideas and future plans to the international grouping—of whatever kind—that is formed among Arab, European and other nations. That will be the forum for the opposition to present their ideas and to seek the support of the rest of the world.

Stephen Gilbert: My right hon. Friend mentioned the possibility of securing a resolution at the United Nations General Assembly as a way of tackling the issue. What assessment has been made of the possibility of that, and on what timeline does he expect to operate?

William Hague: We are still making an assessment of that. Clearly, it was only on Saturday that the resolution was vetoed in the Security Council. A General Assembly resolution does not have the same weight as a Security Council resolution, but it can illustrate the strength of numbers behind a particular proposition, so we are discussing that now—whether it is a feasible way forward—with the Arab League and with our other partners on the Security Council. I therefore cannot give the hon. Gentleman a timeline yet, but it is a possibility.

John Baron: We all wish the Foreign Secretary well in his endeavours, but may I press him in suggesting that the regrettable decision to veto was at least in part caused by Russia and China believing that western powers had exceeded their mandate under UN resolution 1973, when pursuing regime change in Libya, as they made clear at the time?

William Hague: This is not an excuse for Russia and China, and as I pointed out earlier other nations that were very critical of our actions in Libya voted for the resolution, appreciating that it was put forward on behalf of the Arab League, and that it put forward an entirely different proposition from how we proceeded in Libya, because the situation is entirely different. This should not be advanced as an excuse for what is in my view an indefensible veto.

Robert Halfon: I welcome what my right hon. Friend has done thus far, but, just as we were right to intervene in Libya and to support with weapons and logistics those opposition movements that faced massacre, can he do more to work with other countries to give logistics, weapons and humanitarian aid to the opposition groups in Syria? Further, when will the stage be reached at which we need to expel the Syrian ambassador from the United Kingdom?

William Hague: I hope that I have covered those points. We are not engaged, and are not planning to engage, in arming the opposition forces in Syria, although we will help with advice and some logistics and practical support in order to ensure their ability to operate. It would not be in their interests in any case to be seen as an arm of western Governments, so there is a limit to what we can do in that regard.
	On the question of the embassy, we will work with our partners throughout the world on that, but there are advantages in keeping an embassy, as well as in making the strong diplomatic statement of withdrawing an embassy. It improves our understanding of the situation on the ground to have an embassy there.

Richard Harrington: Is the Foreign Secretary aware of reports of chemical weapons and other weaponry being moved by Hezbollah out of Syria? If so, is he concerned about the consequence that that could have for Israel and Jordan, and for the general stability of the region outside Syria?

William Hague: We keep a very close eye on any reports of the presence of chemical or biological weapons. I have not seen reports of such weapons being moved by Hezbollah, although the Syrian regime’s close connections with Hezbollah may give rise to concerns about what
	might happen in Lebanon if the situation continues in Syria. My hon. Friend can be assured that we are alert to this issue.

Andrew Bridgen: The impending elections in Russia and a weakened Mr Putin keen to bolster his domestic opinion polls through a show of strength have been put forward as a possible explanation for the use of the Russian veto. Does the Secretary of State agree with that explanation?

William Hague: The upcoming elections may be a factor in the Russian veto. I think that a stronger factor is that the Russians have had a long alliance with the Assad regime. As I mentioned, they have a naval base in Syria and have sold large quantities of arms there. They feel committed to supporting the Assad regime. That is something that they should change their mind about, in my view, given that the circumstances have changed. We will continue to work on them, before and after their election on 4 March.

Jo Johnson: It is clearly welcome news that India came off the fence and supported the resolution, marking an end to three decades of that country’s ties with the Assad family. To what extent did New Delhi seek to dilute the final text so that it made no mention of automatic measures in the event of non-compliance?

William Hague: Like my hon. Friend, I welcome the fact that India voted for the resolution. It is true that several countries on the Security Council wanted a resolution that did not go beyond the draft resolution as it was put to the vote on Saturday. Certainly, India is one country that would not have wanted a stronger resolution with the authorisation of sanctions or other measures. I stress that the prime negotiations in the Security Council were always with Russia. The objections raised and amendments put forward came from Russia primarily, rather than from India, South Africa or Pakistan.

Rehman Chishti: I welcome the statement by the Foreign Secretary. He will know that there are more than 30 opposition parties in Syria, including the National Council, the National Co-ordination Committee, the Justice party and the
	Kurdish party. The work to unite them has been going on for a long time. How close are we to uniting them? Unless the opposition are united, the future for Syria looks bleak.

William Hague: The answer is that many of those groups have come together under the umbrella of the Syrian National Council. It is in their own interests for all the major groupings to come together under that umbrella. This is a national emergency. As I have put it to them, in this country, which is a thriving democracy, when we face an existential threat, all the parties come together, as with the coalition during the second world war. Syria faces one of the direst emergencies in its history, so they should all be able to come together for this period. We will continue to give that advice, but they have not all managed it yet.

Sajid Javid: May I press the Foreign Secretary on another aspect of dual nationality? Many of the most energetic supporters and members of the barbaric Syrian regime have dual Syrian and British nationality, including members of President Assad’s immediate family. Will the Foreign Secretary make a commitment to consider how we might usefully frustrate this blatant abuse of British nationality and its use as a flag of convenience?

William Hague: Many people may share my hon. Friend’s view about the views expressed by dual nationals in this country. However, views expressed are no grounds to deprive anyone of their nationality. If I took that suggestion to my right hon. Friend the Home Secretary, I am sure that she would be very clear about that. I therefore cannot hold out any hope to my hon. Friend that we will be able to act in the way that he would like us to.

Philip Hollobone: What role can Jordan play in helping to resolve this crisis?

William Hague: Jordan is playing a strong and constructive role. I discussed the situation a couple of hours ago with Nasser Judeh, the Foreign Minister of Jordan. It supports and is an energetic sponsor of the work of the Arab League, and it co-sponsored the resolution that was put to the UN Security Council. We welcome its active participation.

Financial Services Bill

Second  Reading

George Osborne: I beg to move, That the Bill be now read a Second time.
	It is a pleasure to move Second Reading of the Bill. It is the product of many years of thinking, policy work in opposition, extensive consultation in government and impressive pre-legislative scrutiny in Parliament. I want to thank at the start the Joint Committee on the Draft Financial Services Bill, which has made it a better piece of legislation, the Treasury Committee for challenging us to develop clearer lines of accountability in the Bill and the Treasury’s own Bill team, who have worked so hard for the past 20 months to produce the Bill before us.
	The genesis of the Bill is obvious—the biggest failure of economic management and banking regulation in our country’s history. Its purpose is clear as well—to dismantle the disastrous tripartite system created 14 years ago and replace it with a structure of financial oversight that supports successful, competitive financial services while protecting the British taxpayer from the risk that those services run.
	Of course, the Bill is not the complete answer to what went so spectacularly wrong. It should be seen alongside the Basel reforms to capital and liquidity, the living wills and resolution regimes that have been developed and the reforms to the structure of banking proposed by the Vickers commission. It is not by itself a sufficient response to the mistakes of the past, but it is absolutely necessary.
	Let us remember what happened. Over the last decade before the crash, Britain experienced the biggest increase in debt of any major economy in the world. The total of household, corporate, financial and public sector debt in the UK reached a staggering 500% of gross domestic product. Our banks became the most leveraged in the world, and whether it was Northern Rock’s 120% mortgages secured on wholesale funding, Halifax Bank of Scotland’s catastrophic commercial property deals or the Royal Bank of Scotland’s reckless decision to buy ABN AMRO after the markets had frozen, such things did not attract the intervention or, it seemed, the concern of Britain’s tripartite regulatory system.
	That system had been established as a by-product of the decision by the new Labour Government to give the Bank of England independent control of monetary policy. Without warning to the Bank, or anyone else, that institution was stripped of its historic responsibility for regulating the banking system, which was given to a new Financial Services Authority. It was a fateful decision, and one that we now know very nearly prompted the resignation of the then Governor of the Bank, the late Eddie George.
	The comment 14 years ago by the Conservatives’ then shadow Chancellor, my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), during the passage of the Bank of England Bill, which created the tripartite system, was remarkably prescient. If he does not remember it, I will remind him of what he told the House. He warned that
	“with the removal of banking control to the Financial Services Authority…it is difficult to see how and whether the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.”—[Official Report, 11 November 1997; Vol. 300, c. 731.]
	He was spot on. However, at the time he and the Opposition whom he led through the Division Lobby were lone voices.
	Fourteen years later, the general consensus is clear. There were fundamental flaws in the tripartite system right from the start, which are today painfully apparent to the whole world. The first and most serious flaw was that no one in the tripartite system saw it as their job to monitor risks across the whole financial system. The Bank of England focused increasingly on its monetary policy responsibilities; the FSA looked at individual firms, but was more focused on tick-box regulation of individual products than on the prudential health of whole businesses, let alone the financial system; and the Treasury took the fatal decision to run down its financial services division, turning the whole area into an under-resourced backwater in the Department.
	The tripartite committee did not meet once in an entire decade, so no one was looking at the whole system or at the staggering build-up of debt in the economy and leverage in the banking system. As Lord Turner said in his review of the regulatory response to the banking crisis:
	“The failure to do this analysis and to take action on it was one of the crucial failures of the years running up to the financial crisis.”

Claire Perry: As my right hon. Friend is setting out what is essentially a political failure, will he enlighten the House on whether the report on one of the great victims of that failure—RBS—names any Members of Parliament as being specifically involved in the problem?

George Osborne: As my hon. Friend is aware—

Chris Bryant: That’s why she asked.

George Osborne: Well, the report names Tony Blair, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) and the shadow Chancellor. One of the interesting things is that the shadow Chancellor was, of course, instrumental, as I understand it, in creating the tripartite committee. We will hear in his response a detailed defence of the decisions he took.

Edward Balls: Will the Chancellor share with the House the contents of the conversation I had with him in Downing street in December following the publication of that report and following my conversation with the chair of the FSA?

George Osborne: Why does the shadow Chancellor remind us of that?

Edward Balls: I shall repeat. Does the Chancellor recall the conversation we had in Downing street following my conversation with the chair of the FSA and will he tell the House of its contents?

George Osborne: It sounds like the right hon. Gentleman cannot remember it himself. No doubt he will use the time allotted to him to tell us about the role he played
	both as the adviser at the Treasury during the years when the system was created and as City Minister when the ABN AMRO deal was signed off, and about his role in the Cabinet when it decided on its response to those things.

Edward Balls: When I asked the chair of FSA, he said he could have inserted into the footnotes of that 400-page report any number of quotes from the Chancellor, who was at the time in opposition. Will he remind the House of any of his quotes from that period on the dangers of excessive regulation that could have been included in the FSA report?

George Osborne: First, the FSA report on RBS is worth reading and stands by itself. The chairman of the FSA chose to put the right hon. Gentleman’s name in it, which clearly irks him. Secondly, in opposition, we not only voted against the creation of the tripartite committee but consistently warned about growing debt in the economy—not just me, but my predecessors as shadow Chancellor. We will see tonight whether the Opposition vote against our proposed arrangements. We made those warnings; we are now proposing reforms to ensure that those sorts of things do not happen again.

Edward Balls: Perhaps the Chancellor should remind the House that the shadow Chancellor at the time also voted against Bank of England independence. In November 2006, the then shadow Financial Secretary, who is now Financial Secretary, said:
	“Effective light-touch, risk-based and principles-based regulation is in the interests of the sector globally.”—[Official Report, 28 November 2006; Vol. 453, c. 995.]
	Could that quote have been included in the FSA report?

George Osborne: I think the key word is “effective”, which is clearly what was lacking. If the right hon. Gentleman wants me to read out the legion quotes that we have from him as City Minister, how about this one? He said:
	“I believe that we are right to avoid prescriptive, heavy-handed regulation in Britain. Indeed, I believe that while it is Bank of England independence that is regularly cited as the Government’s most significant financial reform, the establishment of the FSA has been as important for Britain”,
	and that
	“It is important the FSA continues to deliver a light-touch and risk-based regulatory approach.”
	We have ended up having a ding-dong across the Dispatch Box, but if he is against what we propose to do to change the system he created, will he vote against the Bill tonight?

Edward Balls: The Chancellor also said in June 2006 that this
	“regulation has been burdensome, complex and makes cross-border market penetration more difficult.”
	In June 2005, he said that
	“we need to build our capacity to deliver world-beating goods and services, whether it is complex financial derivatives pioneered in the City of London”.
	Are those quotes that could have been included in the FSA report? There are many more.

George Osborne: This series of interventions is a little bit self-obsessed, and it reminds everyone of the right hon. Gentleman’s central role—

Edward Balls: You started it!

George Osborne: Well, that is a bit like the John Cleese sketch—the right hon. Gentleman started it by creating the biggest banking crisis in this country’s history. We are trying to clear it up. That is what this Bill is about. In all those interventions, we heard not one word about whether he will support what we are doing to clear up the mess he created.

Edward Leigh: Does not the ding-dong of the last four or five minutes illustrate the dangers of political interference in regulation? Once we get back to the subject of the Bank of England, and given that the top 1% of taxpayers provide 28% of total taxes, can we have regulation in the future less by populism on bonuses, salaries and the rest, and more by the raising of the right eyebrow of the Governor of the Bank of England?

George Osborne: The key issue in our regulatory system that we are seeking to restore is judgment by the regulator, and I will explain how the Bill will enable us to do that. I agree with my hon. Friend that the financial services are an incredibly important industry for this country. They employ more people than any other industry in Britain and, crucially, its proper regulation is not only good for the economy, but essential to prevent taxpayers from being exposed to what they have been exposed to in recent years.

Peter Tapsell: As we are in the mood for recollection, and I am one of those who strongly opposed the tripartite system of supervision when it was introduced, may I say that I very much welcome the Bill? However, the whole strategic object of what we should be doing now is to ensure that we get rid of the shibboleth of the bank that is too big to fail. I doubt whether this admirable Bill, even combined with the Vickers report, will go anywhere near to restoring Glass-Steagall. We will not get rid of banks that are too big to fail until we get back to Glass-Steagall.

George Osborne: My right hon. Friend has been entirely consistent in the views he has expressed, and he was right all along about the weaknesses of the tripartite system. On the explicit issue of whether to introduce the actual physical separation of retail and investment banking—in other words, to introduce Glass-Steagall- like legislation in Britain—I asked John Vickers, who everyone accepts was an independent and extremely expert person for the job, to look specifically at this issue with his commissioners. Some of them were probably inclined at the start to believe that physical separation was the right way to go, but when they examined the issues—and they took an enormous amount of evidence—they believed that the same objective of protecting retail customers from the collapse of an investment bank, and giving the authorities of the day greater powers to protect retail customers as they resolved problems in a retail bank, could be achieved through the ring-fencing proposal that the Vickers commission put forward.
	That would also maintain some of the benefits of one part of the bank being able to support another part in trouble.
	The commission explicitly considered the Glass-Steagall issue, but decided that ring-fencing was a better approach. We will introduce legislation that I hope and intend will have pre-legislative scrutiny in the House during the coming Session. I hope that that will be an opportunity for Parliament to examine the issue that my right hon. Friend rightly raised. As a country, we must decide once and for all how to proceed with the structure of our banking industry.

Charlie Elphicke: Will the Chancellor give way?

George Osborne: Yes, but then I should make some progress.

Charlie Elphicke: I hesitate to take the Chancellor back to the FSA report on the failure of RBS, which says that political pressures to be light-touch were partly to blame for the bank’s collapse. What exactly were those political pressures, in his understanding, and what lessons can be drawn from them?

George Osborne: My hon. Friend is tempting me back into the fertile territory of the shadow Chancellor’s role in the banking crash, but not least because I do not want to provoke a reaction, I think that I should probably move on to the flaws of the system that the right hon. Gentleman helped to create as Treasury adviser.

Edward Balls: Will the Chancellor give way?

George Osborne: Maybe we should just exchange our notes; then we could spare the House.

Andrew Bridgen: To take the Chancellor back to my experiences in 1997, I was in business, and my bankers at the time were at the Royal Bank of Scotland. Shortly after the general election in which the Labour Government were elected, I had a meeting with my bankers. I expressed my disappointment at the election result, but they were extremely upbeat. I asked them why, and they said, “Labour Governments are never any good at regulating the financial services industry. We’re going to make a lot of money in the banking industry.” Are not those words prophetic?

George Osborne: For a while, they did make an awful lot of money. Unfortunately, they then lost an awful lot of money, which is one reason why we are here talking about the legislation.
	Before any Minister comes to the House of Commons to ask for an existing regulatory regime to be replaced, it is incumbent on him or her to explain why it is felt to be necessary, so let me explain. Another flaw of the current system is that when the crisis hit in 2007 and 2008, no one knew who was actually in charge. The Treasury Committee of the last Parliament, led by John McFall, said in its report:
	“The biggest failings of the Tripartite’s handling of Northern Rock were that it was not clear who was in charge, and, because the Tripartite took a minimalist view of their respective responsibilities, necessary actions fell between three stools.”
	The House of Lords Committee, which also did some excellent work on the matter during the last Parliament, said that
	“the tripartite authorities in the United Kingdom…failed to maintain financial stability and were found wanting in dealing with the crisis, in part because the roles of the three parties were not well enough defined and it was not clear who was in charge”.
	In other words, a whole system of financial regulation had been created by the previous Government, yet no one knew who was in charge.
	That led to the third fatal flaw that became apparent. The Government of the day, accountable to Parliament and the public for the use of taxpayers’ money, simply did not have the powers to do what they felt necessary when the crisis hit. My predecessor as Chancellor said in his recent memoir:
	“The whole system depended on the chairman of the FSA, the Governor of the Bank and the Chancellor seeing things in exactly the same way. The problem was that in September 2007, we simply did not see things in the same way.”
	That, of course, led to the confusion in the autumn of 2007. As he said,
	“I could not in practice order the Bank to do what I wanted”,
	even when taxpayers’ money was at stake.
	On top of all those flaws in the tripartite system, it is not as though customers were being better protected from the mis-selling scandals that have beset the industry for the past 30 years. The payment protection insurance saga happened on its watch. In 2001 alone, firms were forced to pay more than £1 billion-worth of redress to consumers who were mis-sold products.
	Those are the flaws of the tripartite system—flaws that cost this country in output more than 10% of our entire gross domestic product, flaws that have led to hundreds of thousands of people losing their jobs, flaws that wiped out the savings of millions of small shareholders, and flaws that saddled an entire country with more than £1 trillion of debt. The British people need to be confident that mistakes have been acknowledged and that lessons have been learnt. The legislation that we have put before the House today shows that they have been learnt.

Edward Balls: Without wanting to disrupt too much the Chancellor’s political narrative, I ask him to remind the House of the regulatory structure and of who was in charge of regulation during the scandals involving the Bank of Credit and Commerce International, Barings, Equitable Life and Johnson Matthey. Were those scandals all the result of the tripartite structure, or might some of them have preceded it, at a time when the Bank of England had the lead on banking and financial regulation?

George Osborne: I would make this important point to the right hon. Gentleman: of course those were failures of regulation, and of course the Bank of England was in charge of banking regulation when they happened, but they were failures of regulation in individual firms—detailed work was done afterwards to find out what went wrong and to try to put it right—not failures across the system. The collapse of Barings did not bring down the whole system, whereas the run on Northern Rock created shockwaves around the world. The decision in 1997 to remove the Bank of England’s macro-prudential role was a fatal mistake.

Edward Balls: Rubbish.

George Osborne: The right hon. Gentleman calls it rubbish, but let me say this: he was instrumental in a way that no one else in the Labour party was in designing the system that I am proposing to dismantle. He is well within his rights to get up and say, “I defend the system that I created. I think that it is the best way of regulating financial services, and what you have come up with is wrong”, but if he believes that, he should have the courage to vote against the Bill tonight. If that is his view, he should get up and say, “I’m going to vote against your approach because I don’t think it’s the right one”, but I do not think that he has the courage to do so, because he is trying to escape his past, rather than defend it.

Edward Balls: I will set out our position in my speech, but the idea that by making the Bank of England independent and adding a second deputy governor with responsibility for macro-prudential financial stability on both the Monetary Policy Committee and the FSA board, the Bank’s role in macro-prudential stability is diminished or removed is plain wrong. The Chancellor should not be allowed to state things that are outwith the facts.

George Osborne: The right hon. Gentleman is perfectly entitled to that view, but it is not shared by the Select Committees that have considered the matter, including during the previous Parliament; it is not a view shared in the work by the FSA on what went wrong and the failure to conduct macro-prudential analysis; and it is not a view shared by almost everyone who has looked at the failures of the British regulatory system during the period in question. He is perfectly entitled to his view—I am not surprised that he holds it, given that he was responsible for creating the system—but if it is his view, he should have the courage to vote against our proposals to dismantle it.

Claire Perry: Nor was the view of the right hon. Member for Morley and Outwood (Ed Balls) that of the Governor of the Bank of England, who said:
	“All we can do at present…is to write our Financial Stability Report and give speeches.”
	The Bank was completely emasculated by the right hon. Gentleman's reforms.

George Osborne: My hon. Friend reminds me that in the Mansion House speech in 2009, I think, the Governor, appointed by the previous Government, said that the Bank was being asked to do things that it had not been given the powers and tools to do. It was a striking speech—I cannot remember whether the right hon. Gentleman was there—but the difference between the views expressed by the Chancellor and the Bank Governor in the space of one evening was striking.
	I will now go through the details of the legislation and see whether it commands all-party support. I shall go through what we are doing to address the flaws that I have identified in the existing system. First, we are going to establish a new macro-prudential authority in the Bank of England to monitor overall risk and levels of debt in the financial system. Secondly, we are making the Bank of England the single point of accountability for financial stability, ensuring that there is a decisive
	answer to the question, “Who is in charge?” Thirdly, the Bill ensures that in a crisis, when taxpayers’ money is at stake, the power to act sits with the Chancellor of the day, accountable to Parliament. Fourthly, the legislation creates a strong conduct regulator that is able to give its undivided attention to promoting competition and protecting consumers. Let me take each in turn, and in some detail.
	First, the responsibility to monitor risks across the system falls to the new Financial Policy Committee in the Bank of England, established by clause 3 and entrusted with responsibility for the stability of the whole system. Its job will be to identify bubbles as they develop, spot dangerous interconnections, warn about poorly understood financial instruments and take action to stop excessive levels of debt building up before it is too late.

Jonathan Evans: My right hon. Friend will be aware that the risks in the banking sector have been shown by the recent crisis to be rather different from those in the insurance sector, for instance. He will also know that the Joint Committee on the Bill recommended that a member of the Financial Policy Committee should be someone with insurance experience, but that does not appear in the Bill. Perhaps he could explain why not.

George Osborne: We do not want to prescribe in the Bill the qualifications of the external members of the Financial Policy Committee. That would be a mistake. However, I would obviously want to ensure that the external members—I will say something about this shortly—have broad and current experience of the financial system. There is an issue, as I will set out, about how this House—and, indeed, the political system—approaches conflicts of interest. In other words, we have to make a trade-off between appointing as external members to such bodies people who actually know what is going on in financial services and, at the same time, wanting to direct conflicts of interest, being careful not to rule out anyone simply because they work in financial services. The Select Committee on the Treasury and the Joint Committee that looked at the Bill have made an important recommendation for us all: to be careful about creating a system in which no one who has current experience of financial services sits on the bodies that regulate individual firms or, more importantly, system-wide risks, and that includes insurance.

Charlie Elphicke: With the tripartite system, of which I believe the shadow Chancellor was the architect, a tick-box culture of regulation grew—a one-size-fits-all approach, and that sort of thing. Can the Chancellor tell the House a bit about how we will get rid of that tick-box culture and move towards a culture of more individual and tailored regulation?

George Osborne: The key thing is to empower the regulators both to exercise judgment and then to be able to do something about it. One reason for locating both the macro-prudential role and, when it comes to individual firms, the micro-prudential role in the central bank is the culture in central banks—not just in the Bank of England, but in central banks generally—of exercising judgment and acting on it. I very much want to encourage that. My hon. Friend is right: there was no shortage of regulation, in that sense, in 2006-07. RBS complied
	with every bit of regulation in its decision to try to take over ABN AMRO; it is just that no one felt empowered to say, “Is this the right thing, for this firm and for the financial system, at a point when the financial markets have already frozen up?”
	Rather than wait for this legislation to pass through Parliament, we have gone ahead and created the Financial Policy Committee on an interim and non-statutory basis. It is already meeting regularly to assess risks across the financial system, such as the need for banks to provide for adequate capital before determining the distribution of profits, as well as drawing attention to specific products, such as exchange-traded funds, whose excessive use may be a cause for concern. It has already produced two impressive financial stability reports.

Kerry McCarthy: At the time of the collapse of Barings, I was working at Abbey National Treasury, which was involved in a joint venture trading derivatives with Barings. I was one of those brought in to clear up the mess, for which—I hasten to add—I was not responsible.
	It was clear from what happened at Barings that there was a huge gulf between what the traders understood about their trading activities and what the management understood, and an even bigger gulf between the management and the regulators at the Bank of England. The Chancellor has said that the new committee will look at exotic and complex financial instruments, but how can he guarantee that its members will really understand what is happening on the trading floor?

George Osborne: That is the task that we are giving them. They must ensure that they have the necessary expertise and resources. The interim committee is looking across the piece—I will deal later with the role of regulating individual firms—but it is interesting that its two financial stability reports highlighted a specific financial instrument, the exchange-traded fund, and expressed concern about its rapid growth. I am not aware that the regulatory system that existed in 2006-07 spotted, for example, the rapid increase in the use of collateralised debt obligations. It did not warn about specific instruments and the growth in their use. The financial stability reports of the committee that we have already set up demonstrate an attention to particular complex market instruments and their potential systemic risks.

Edward Balls: Will the Chancellor explain why, if the key is locating regulation in the central bank, those pressures before 2007 were not spotted by the US Federal Reserve, which was the central banker and the regulator? He is giving a very UK-specific analysis. What about all the other examples of central banks failing to spot these growing problems?

George Osborne: There are examples of central banks, such as the Canadian and Spanish central banks, which were much more aggressive in counter-cyclical regulation, and which felt empowered to make the decisions. In the United States—I am sure that the right hon. Gentleman has had conversations about this with the United States Treasury Secretary and the Federal Reserve chairman—things have been taken to the opposite extreme. There is
	a plethora of regulators—too many different regulators. The single biggest problem in the United States probably occurred in the insurance industry, in the American International Group, which was an insurance regulator based in one particular state and not something for which the Federal Reserve had a responsibility. Ben Bernanke has talked about the role of central banks, and I shall say something about his view later.
	I think it right for us to create a Financial Policy Committee that is on a statutory footing. I have talked about the importance of its having external independent members who are able to provide market expertise and challenge received opinion, but I believe—and this may be something that we can tease out in Committee—that we should think about how we can get the balance right, and avoid conflicts of interest while also bringing in people with real expertise.
	What makes the Financial Policy Committee that the Bill will establish such a radical departure in terms of policy making is that we are not only asking it to assess the risks throughout the financial system, but proposing to give it powerful tools with which to do something about those risks. The Monetary Policy Committee assesses the risks of inflation and whether it will overshoot or undershoot the target, and then alters interest rates as appropriate. The Financial Policy Committee will be given macro-prudential tools with which to hit the financial stability objectives set out in the Bill, and to reduce and remove systemic risks to the stability and resilience of the UK financial system.

Peter Tapsell: The shadow Chancellor raised the question of both Barings and BCCI, and it underlines the nature of the regulatory problem. The Barings failure was largely a failure of the Singapore regulatory authority. I was closely involved with Singapore as an adviser to the monetary authority at the time. The Government in Singapore were horrified by the fact that a British rogue trader had not been spotted, but it was the responsibility of Singapore to find him.
	As for BCCI, which I also knew well in my stockbroking days, its regulator was in Luxembourg, which was the reason why the Bank of England did not spot the problem until too late. That problem will continue. There are considerable limits to what any regulator can ever achieve. In worldwide banking, there will always be people overseas who are up to mischief, and no regulator based in London can ever conceivably know what they are all up to.

George Osborne: My right hon. Friend makes a very good point about the international nature of this business. We must try to design a regulatory system that protects the British taxpayer from rogue traders and illegal activity in individual firms that might create broader systemic risks. We must also be alert to broader risks building up in the system—for example, when trying to moderate the impact of a credit boom. This is not just a question of dealing with individual risks and individual firms; it is also a question of dealing with risks across the financial system.
	My right hon. Friend is completely right to draw our attention to the need for regulators to work together better internationally. The least well developed piece of the financial regulatory system, post-crash—the one lesson that has not yet been taken far enough—involves
	the way in which we can better protect the world from large international businesses that live internationally but die nationally, such as Lehman Brothers. Co-ordinating resolution regimes across the different jurisdictions will be the work of international bodies such as the G20 and the Financial Stability Board in the year ahead.

Stephen Gilbert: My right hon. Friend has talked about the macro-prudential powers that the Bank of England will have, beyond its monetary policy powers, to step in and help to cool down the economy. Those powers will include setting the ratio for the multiples of earnings that can be borrowed to secure a mortgage, which could have serious consequences across the country. However, those regimes have not yet been published or discussed. Can he give me an assurance that, when those macro-prudential powers are published, the House will have a debate on them?

George Osborne: Yes, I can give that assurance. This is an important point that I want to flag up so that the House understands what we are collectively embarking on. We are seeking to give the Financial Policy Committee the tools to help to dampen down a credit boom or to help in a credit crunch. As my hon. Friend has said, it will be able to alter the maximum loan-to-value ratios in mortgage lending in order to curb an unsustainable rise in house prices. It will also be able to do the reverse, should we face unwanted house price deflation. It will also, potentially, be able to alter capital requirements for banks, in a counter-cyclical way. I should say that these are just possibilities; they are potential tools that the committee might want to use.
	One key feature is that the measures will be independently applied, so there will be no political pressure to, say, keep a housing boom stoked up as an election approaches. Another key feature is that the Financial Policy Committee should act symmetrically—that is the intention of Parliament. Its job will be to act not just to moderate a credit boom but to try to alleviate a credit bust. The precise tools that we give the FPC have yet to be determined, as my hon. Friend has just said. We have sought the advice of the interim organisation that we have created, and it will come to us with proposals for the kind of tools that the permanent body will need. We will then seek the approval of both houses of Parliament through the affirmative resolution procedure—which will of course involve a debate—before we pass those tools over.
	I freely accept that we are in largely uncharted policy making territory, here or anywhere in the world. Many other jurisdictions are considering such measures, but we are ahead of most of them. Surely the experiment of making no attempt to moderate the credit cycle—letting the bubbles grow and burst, then cleaning up afterwards—has been an unmitigated disaster, and we would be failing if we did not look for an alternative approach.

George Mudie: One suggestion from the Treasury Select Committee was that the Chancellor should not send the proposals to a statutory instrument Committee. That would involve a 90-minute discussion and the proposals would not be amendable. He should instead allow the matters to be debated seriously on the Floor of the House. I wonder why he would think it
	attractive and helpful to send them upstairs where they cannot be amended; that would suggest a foregone conclusion by the governing party that they would be accepted.

George Osborne: I would certainly be happy to have a debate about that on the Floor of the House. It is a decision for my colleagues, the usual channels and so forth, but in my opinion the important tools given to this body will have a real impact on our constituents. It will affect the kind of house they are able to afford on their income—the bread and butter of people’s daily lives—and it is important for us all to understand that as we create instruments of policy.
	We are seeking to address another flaw in the system by making the Bank of England the single point of accountability when it comes to the prudential regulation of banks, large and complex investment firms, building societies and, as my hon. Friend the Member for Cardiff North (Jonathan Evans) reminded us, significant insurance companies. A new prudential regulation authority will be established within the Bank to perform that major new function.
	As the shadow Chancellor pointed out, the Federal Reserve in the US already has responsibility for the prudential regulation of major banks, but not of other financial firms. Let me cite what Ben Bernanke said in what I believe was testimony before Congress:
	“The Federal Reserve’s role in banking supervision complements its other responsibilities, especially its role in managing financial crises...During the current crisis, supervisory expertise and information have repeatedly proved invaluable in helping us to address potential systemic risks involving specific financial institutions and markets and to effectively fulfil our role as lender of last resort...The Fed’s prudential supervision benefits, in turn, from the expertise we develop in carrying out other parts of our mission—for example, the knowledge of financial and economic conditions we gather in the formulation of monetary policy.”
	I raise this matter because at the heart of the new arrangements we are seeking to establish an understanding that today’s financial markets are so interconnected that the failure of a single firm can bring down the whole system, and risks across the system can bring down many single firms. These feedback loops are what proved so devastating in the crisis.
	Some critics of the legislation now accept the need for a macro-prudential Financial Policy Committee, but still doubt whether we should give the Bank responsibility for the micro-prudential regulation of individual firms, too. I would argue that because the interconnections are so great, the FPC could not do its job without knowing what is going on in firms, and a prudential regulator could not do its job without knowing about risks across the system. The best way to combine the insights is to put them both under the aegis of the same institution—the central bank.
	I understand that the shadow Chancellor is concerned that our Bill does not create additional lines of communication between the deputy governors of the Bank and the Chancellor, bypassing the Governor, so he might like to explain what he meant. I considered the idea, but rejected it. I think we need to force the Bank of England itself to reconcile its internal differences rather than create additional lines of accountability between the Chancellor and a deputy governor. Perhaps the right hon. Gentleman—[Interruption.] He says,
	“Dear me”, so perhaps he will explain why he wants to institutionalise a regime in which the No. 2 constantly undermines the No. 1.
	The Joint Committee and the Treasury Select Committee have raised what I regard as a far more relevant concern—the accountability of the Bank of England, given its important new responsibilities. We have listened carefully to the recommendations from both Committees and while I do not propose to abolish the court of the Bank of England, I do propose to give it important new powers to hold the executive Bank to account. The Governor and the court of the Bank of England have agreed that a new oversight committee, consisting of the non-executive members of the court, should be created. This group of external independent people will ensure that the Bank discharges its financial oversight responsibilities correctly; it will be able to commission both internal and external reports on the Bank’s policy makers’ handling of particular events and particular periods of policy making. Those reports will be published, with market-sensitive information protected, if necessary.
	The Governor is of course, as is the case today, a key figure in the arrangements. It is important that he or she is not only independent of the Government of the day, but seen to be so. The recent experience of reappointing Governors after their first five-year term has expired has not been a very happy one. It has created unnecessary uncertainty and called into question political confidence in the Governor. Although I would hope that this Government would handle the whole thing better than their predecessor did, it makes sense simply to eliminate the possibility of discord entirely, so schedule 2 provides that the next Governor of the Bank of England and his or her successors will serve a single eight-year non-renewable term. That is a sensible reform.
	The third flaw in the current arrangements was the fact that the Chancellor of the day felt he did not have the necessary powers to act in the interests of taxpayers. This is another area where the work of the Joint Committee and the Select Committee have proved invaluable. The legislation makes it clear that the day-to-day responsibility for financial stability lies with the Bank of England. We do not want the Treasury second-guessing that work. Beyond setting the parameters for the regulatory system, the Chancellor should become involved only if there is a material risk to public funds. The responsibility in this regard is made clear in the Bill, and in the memorandum of understanding that we have drawn up with the Bank. The Bill makes it clear that the Governor has a responsibility to inform the Treasury immediately as soon as there is a material risk of circumstances arising in which public funds might reasonably be expected to be used.
	The Bill is also rightly clear that the use of public funds is entirely a decision for the Chancellor, as he or she is the person accountable to Parliament, and through Parliament to the public. My predecessor is, again, revealing about the limitations of the current arrangements in his book:
	“My frustration was that I could not in practice order the Bank to do what I wanted. Only the Bank of England can put the necessary funds into the banking system…I asked Treasury officials if there was a way of forcing the Governor’s hand. The fact that we had given the Bank independence had a downside as well as an upside.”
	Of course my predecessor had, as any Chancellor does, the general power of direction over the Bank that the Bank of England Act 1946 provides, but that general power of direction has never been used, so it is a nuclear option that might blow up anyone who tries to use it. That was the conclusion that my predecessor reluctantly came to.
	That is unsatisfactory. The Bank must, of course, be protected from politicians who want to use its balance sheet against the wishes of the Governor simply because those politicians want to avoid using the Government’s balance sheet, but the Bank should not be able to use that as an excuse to withhold its services as an agent from a Government prepared to use its own Government balance sheet. Otherwise, in many situations that becomes, in effect, a veto on an elected Government’s fiscal decision making.
	The Bill and the memorandum of understanding give the Chancellor of the day not only the right to be informed when there is a material risk to public funds, but the right to ask the Bank to analyse different options that might be available to deal with the risk, and in the newly added clause 57 the Bill gives the Chancellor a defined power of direction to require the Bank to provide liquidity to a particular firm or to put a particular firm into resolution or to provide liquidity to the general system, provided that the Chancellor does so using the Government’s own balance sheet, and makes that clear.

Edward Balls: Can the Chancellor envisage a situation in which the Governor of the Bank of England may judge not to inform the Chancellor that there is both a material threat to stability and the need for the use of public funds—and if a Governor were to make such a judgment not to inform the Chancellor, would that be his personal judgment?

George Osborne: First, the Bank Governor will have a statutory obligation to inform the Chancellor, so they would be failing in their statutory obligations—

Edward Balls: rose—

George Osborne: Perhaps I have misunderstood the question.

Edward Balls: This is important, so I will ask the question again. Can the Chancellor envisage a situation in which the Governor of the Bank of England would choose not to inform the Chancellor because in the Governor’s view there was not a material threat to financial stability, and therefore no need for the use of public funds? And if the Governor chose not to come to the Chancellor in such a situation, would that be the Governor’s own personal judgment—for example, if the deputy governor for financial stability or the head of the Prudential Regulation Authority took a different view?

George Osborne: The legislation makes it clear that that is the Bank’s responsibility. Of course, the Governor is chair of the key committees—the Financial Policy Committee and the Prudential Regulation Authority—that would make these judgments, but we have to require the Bank to resolve its internal differences. Obviously the Bank has its own procedures to deal with any dispute, which it will develop, but we have deliberately created
	boards and committees that have independent members and external oversight. Of course there are three deputy Governors, but ultimately—perhaps that is just going to be a point of disagreement between me and the right hon. Gentleman—I do not think it is right to create different lines of accountability from the Bank of England to the Chancellor of the day. The Chancellor has to deal with the Bank, and with the person of the Governor. However much legislation we write and however many clauses we put in place, those who do my job and that of the Governor also have a very important responsibility to get on with each other and to try to make that arrangement work.

Edward Balls: The problem is that in the legislation, in the memorandum of understanding and in the Chancellor’s own answers there is a gap, a hole and an ambiguity. In his speech he referred to the judgment of the Governor, then he talks about the judgment of the Bank and then he says that the Bank must resolve whether the Governor’s view is the same as that of the rest of the Bank. I repeat my question: can the right hon. Gentleman envisage being concerned by a situation in which the Governor chooses not to come to him asking for funds because the Governor believes that there is not a systemic risk, even if it is coming to the Chancellor’s attention that other senior statutory office holders in the Bank have a different view? Can the right hon. Gentleman envisage such a situation, when the Governor chooses, for example —as he said, this is a judgment for the Governor—that the moral hazard overrides the systemic potential threat?

George Osborne: As I say, it is the responsibility of the Bank to inform the Government: that is what the legislation and the memorandum of understanding make clear. The Bank, of course, has its own procedures for coming to a view within the Bank. Creating a system where a deputy Governor could bypass the Governor and go directly to the Chancellor would be a recipe for division at the Bank. We have to force the Bank to come to a collective view and then deal with the Government of the day.

Edward Balls: This goes absolutely to the heart of the issue. The reality is that if we have a tripartite or quartet system in which the statutory regulator is not the same as the Governor, the head of the PRA or the head of the Financial Services Authority can have a different view and say that in their judgment the threat to the company and to the system is so great that it justifies action, even if the Governor judges that the moral hazard risks from intervention override that threat, and that therefore there should not be a request for public funds. In the current system, the Chancellor would hear from the head of the FSA—from Adair Turner—whereas under the new system and the memorandum of understanding he will not hear, other than from the person of the Governor. My question to the Chancellor is: does he worry about that and about the potential instability and misinformation to him which could come as a result of the memorandum of understanding that he has drafted?

George Osborne: The first point I make to the right hon. Gentleman is that the Bank Governor does not come to the Government when he thinks public funds should be used; he does so when—this is set out in the legislation—
	there is a material risk that public funds may be required. Of course the decision to use public funds would be one for the Chancellor of the day.
	The second point that I make is that the problem with the tripartite committee was one set out in my predecessor’s book: in autumn 2007 there were three different views and there was no way of reconciling them—and there was no clarity about who had power and responsibility. What we are talking about here, and what I am explaining, is a new power of direction. Of course any Chancellor would think very carefully before using it, but this power makes it absolutely clear that once there is a material risk to public funds, the Chancellor of the Exchequer has not only a power, as the current person doing the Chancellor’s job has, to authorise the use of public funds—that is what my predecessor did in respect of the Royal Bank of Scotland—but a power of direction to provide liquidity to an individual firm and liquidity to the system. Those were not powers that my predecessor had. Of course, as I will come on to discuss, there are certain constraints and things that have to be done to inform people before they are used, but these are new powers that we are giving so that the Chancellor of the day does have powers, provided that he or she is prepared to use the Government’s own balance sheet.

Edward Balls: rose —

George Osborne: I will give way one final time, but then I will conclude.

Edward Balls: The whole point—this is so important, and goes to the heart of one of the debates in the committee—is that in the historical examples given by the Chancellor, when the then Chancellor wanted to act and others in the regulatory system did not, the Governor of the Bank of England was one of those who did not. In the situation that the Chancellor has now set up—article 20 of the memorandum of understanding states this clearly—there will be a personal relationship between the Chancellor and the Governor. This “twin peaks” system is a personalised conversation, in that the Chancellor hears the Bank’s view from only one individual. I ask him again: would he be worried if he did not hear a view in such circumstances? Is this really a matter for the Governor’s judgment, as the MOU says, or should the statutory office holders—the head of the Prudential Regulation Authority, the Financial Services Authority and the deputy governor from the Financial Policy Committee—have not only a view but a right for that view to be heard by the Chancellor and then by Parliament? That is my question.

George Osborne: We can explore this at greater length in Committee, but I say to the right hon. Gentleman now that we are trying to avoid a situation in which different people in the Bank think they have a direct line to the Chancellor. We are trying to require the Bank to resolve its internal differences, and we are creating various committees, balancing the membership between external and internal members, but we absolutely see a central role for the Governor of the Bank—and I do not make any apologies for that.
	I was not in the room when some of these conversations happened in recent years, but as far as I can see, and as has been reported since, it is clear that personal relations between the Bank Governor and some of the very
	senior members of the Government completely broke down. That is not a situation we want to see in the future, and I think that the person who does my job and the person who does the job of the Governor of the Bank of England have an obligation to get on with each other and maintain the personal relationship; that is a very important part of both our jobs. No amount of legislation or MOU—
	[
	Interruption.
	]
	The right hon. Member for Morley and Outwood (Ed Balls) says that it is not about getting on with each other. Frankly, it is about working at this very important relationship at the top of our financial system, and not getting into a situation in which those involved are not able to pick up the phone and talk to each other. Yes, of course we are institutionalising the arrangement, creating memorandums of understanding and so on, but I do not want to detract from the fact that there is also a personal responsibility for the Chancellor of the day and for the Bank of England Governor to ensure that they can work together in the national interest.

Geoffrey Robinson: I hate to intrude on this Socratic dialogue between the Chancellor and my right hon. Friend the Member for Morley and Outwood (Ed Balls), but can the Chancellor not see that in these critical decisions there will be differences? I do not draw a direct comparison with the military, where the Chief of the Defence Staff has a right of appeal or a direct line of communication with the Prime Minister, but in these critical decisions it is not enough for a hard-headed, narrow-minded or too-forceful Government to insist on a point of view. A release valve is needed to reach a balanced judgment, and the No. 2s in all the crucial areas should have the right to come straight to the Chancellor. Good foresight and good judgment are involved in that.

George Osborne: The other point that I would make—the Financial Secretary to the Treasury is reminding me of it—is that the Treasury sits on all those committees as a non-voting member. It is in on all the discussions, with a Treasury official sitting in on and understanding the debate.

Several hon. Members: rose —

George Osborne: I give way to my hon. Friend the Member for West Suffolk (Matthew Hancock), who has worked in the Bank of England.

Matthew Hancock: Does the Opposition’s proposal not seem to be an attempt to re-create a tripartite structure in which there is more than a relationship between one and one other? We have problems with the concept of “too big to fail”, and the example of Barings has been cited. That bank did not bring the rest of the system down: the directors ended up losing their jobs and the person responsible went to prison. Will the Chancellor consider the scale of that failure, compared with what happened in 2008 when the whole system collapsed?

George Osborne: My hon. Friend is absolutely right. There was a failure of regulation with Barings, but the collapse of Barings did not bring down the financial system, either in the City of London or more broadly.

Mark Field: My right hon. Friend is absolutely right about this. Surely the issue is the clarity of the relationship between the Governor and the Chancellor of the Exchequer in relation to the confusion in the tripartite system. That would not prevent, and should not prevent, any Governor worth his salt from at least making it clear that there were other views within the Bank, albeit that it was his judgment in the advice to the Chancellor. That gets away from some of the confusion about whether we are looking to sweep away an integral part of the tripartite system.

George Osborne: My hon. Friend makes an extremely good point. This is all about the Governor’s responsibility to do his or her job in managing the Bank, and about the Bank’s coming to a collective view. The job of the Chancellor of the day is to manage the relationship with the Governor. For all the virtues of the tripartite system that the shadow Chancellor seems to be extolling, I understand that those at the principal level in the tripartite system did not meet for 10 years; perhaps he can correct me, as he was there.

Edward Balls: The tripartite standing committee met every month at the deputy level, from its inception until the crisis. The responsibility for triggering a full meeting of principals was in the hands of the Governor and the head of the FSA. Throughout that entire period either the systemic regulator, the Bank, or the individual firms regulator, the FSA, could have triggered a meeting, but did not. There were two people who could have triggered that, but in the Chancellor’s world there will be only one trigger. That is my concern.

George Osborne: The right hon. Gentleman keeps saying there were two people, but there were three principals in the tripartite committee. It was chaired by the Chancellor of the day—the Chancellor whom he advised—but as I understand it, that Chancellor never convened the tripartite regime at the principal level. [ Interruption. ] I can tell the shadow Chancellor that under the tripartite regime now—that is still the current arrangement—there are meetings on at least a monthly basis with myself, the Governor of the Bank, the chairman of the FSA and so on. In the tripartite system that the shadow Chancellor saw at first hand, the principals, including the Chancellor of the day, never in 10 years—we are not talking about 10 weeks or 10 months—convened a meeting of the principals. The fact that he says that it was entirely the job of the Governor of the Bank of England or the chairman of the FSA to call a meeting, when the chair was the Chancellor, who could have called a meeting at any time he wanted, is very revealing about what went wrong.

Mark Durkan: Is the power to direct, to which the Chancellor has referred, contingent on the Governor of the Bank of England formally advising the Chancellor of a material risk, or could the Chancellor exercise that power to direct on the basis of his own concerns, which may have been conveyed to him from the industry, Parliament or any other intelligence? The Bank might be loth to advise the Chancellor formally in that way if doing so would trigger the power to direct, because it might want to avoid that, and the wider concerns that it might raise. Once the Bank has had the
	“Shall we tell the Chancellor?” discussion, what should the Treasury representative do during that discussion and after it?

George Osborne: As I have said, when the legislation is passed, the statutory responsibility will be on the Bank of England to inform the Government if there is a material risk that public funds might be used. We are trying to get away from a system in which it is the Treasury’s responsibility to try to regulate the financial system on a day-to-day basis in peacetime. We are giving the responsibility and clear accountability to the Bank of England so that it will trigger the arrangement by informing us of a material risk. As is set out in the legislation, twice-yearly meetings between the Chancellor and the Governor to discuss these things are required, although there could also be further meetings. Once the Bank has informed the Treasury of a material risk, which it will have a statutory responsibility to do, there will be a power of direction. I should just say, for the sake of completeness, that if we wish to keep the details of the use of this power confidential, I or my successors would have to inform, on a confidential basis, the Chairs of the Treasury Committee and the Public Accounts Committee, so that representatives of Parliament were informed.
	The fourth and final flaw in the system that we are trying to address is that customers and consumers too often get a raw deal from the regulation of financial services. The disappearance from the high street of names such as HBOS and Bradford & Bingley has inevitably reduced competition in an industry that was becoming more and more consolidated even before the crash. The existing regulator’s dual prudential and consumer remit means that it cannot give consumer interests its undivided attention. In response to the Vickers commission and the Joint Committee, the new authority will have an explicit responsibility to promote competition. We have listened to the Joint Committee and announced that we will also bring the regulation of consumer credit into the authority’s remit so that, for the first time, the regulation of all retail financial services will be under one roof, and things like pay-day loans will be subject to tougher regulation.

Stella Creasy: The banks that have gone from my high street have been replaced by high-cost credit companies that offer exorbitant rates of interest. I know that the Financial Conduct Authority will have powers over competition. Does the Chancellor accept the argument, made by many Opposition Members, that price inevitably reflects competition, so it is absolutely right that the FCA should look to regulate the price of those products and finally tackle the legal loan sharks?

George Osborne: The Department for Business, Innovation and Skills has commissioned a review of the cost of credit, but I think that the Bill takes a significant step on that, partly because of the Joint Committee’s recommendations, because the regulation of all retail financial services will now come under the remit of the FCA. It will have the power to ban specific products, to name and shame particular firms and to publish details of misleading promotions, so there will be considerable new powers that were not previously available. On the hon. Lady’s specific concern about the price of credit,
	that is something the Government are looking at. Of course we are also looking at the recommendations of the FSA’s recent report on RBS—I do not wish to reopen that issue—in relation to legislation on the sanctions available for bank directors who fail in their role.
	The Bill is an important piece of legislation. I believe that it replaces the confused and dysfunctional system that presided over the biggest banking crisis in our modern history. It creates clear lines of accountability by putting the Bank of England in charge of monitoring and dealing with debt levels in our economy. However, no amount of new clauses, powers or institutions can substitute for something for which Parliament cannot legislate: judgment. There were thousands of pages of financial regulation in existence in 2007, but that did not stop the queues forming outside Northern Rock or prevent RBS from making its final, fatal, bid for ABN AMRO. I hope that we have learnt that financial stability depends not simply on a checklist of regulation, but on individuals within our regulators feeling empowered to trust their judgment, and our giving them the power to act on it. By putting our central bank in charge of monitoring overall levels of risk and the soundness of individual firms, we are trusting in its judgment. By giving the elected Government of the day the power of direction in a crisis, we are trusting in their judgment, and that of Parliament, to which they are accountable.
	Britain has paid a higher price than most for what went so badly wrong in our banking system. The errors of the economic policy that led to such a boom have cost every taxpayer dear. Today we show that we are learning the lessons and passing on to our successors a better system than the one we inherited. I commend the Bill to the House.

Several hon. Members: rose —

Nigel Evans: Order. Before calling the shadow Chancellor, I indicate to hon. Members who wish to take part in the debate that there will be a 10-minute time limit on Back-Bench contributions, with the usual procedure for interventions.

Edward Balls: Let me start by striking a rather different tone from that of the Chancellor’s performance in the House this afternoon by setting out where the Opposition agree with what he and the Government are trying to achieve and offering some constructive proposals to tackle the flaws in the legislation before us and help make it a better Bill. Financial stability and the effective regulation of our banking and wider financial services industry are vital for stability, for consumers to save and for businesses to invest. Getting the balance of regulation right is an important task for any Government, especially when hundreds of thousands of jobs depend on the industry. That is a task in which all Governments throughout the world failed during the previous decade.
	We can all agree that the irresponsible actions of the banks themselves caused the crisis, but there were major failings in financial regulation, in law, in corporate governance, in procedure and in judgment in America, Asia, throughout Europe and here, too, in Britain. We did not regulate the banks in a tough enough way and stop their gross irresponsibility here in Britain or throughout
	the world, and after a financial crisis on that global scale we need to learn the right lessons and to put in place the right reforms in order to do what we can to stop such a crisis being repeated.
	In that spirit, we welcome aspects of the Bill before us and, in particular, the establishment of the new Financial Policy Committee and the competition and consumer focus of the Financial Conduct Authority, but we are worried that the Bill falls well short of being fit for purpose.
	In an excellent report, the Joint Committee that scrutinised the draft Bill stated:
	“To be successful reforms will have to change the regulatory culture and philosophy,”
	which is
	“not something that legislation can guarantee but legislation can influence the culture of a regulator by: setting objectives; allocating and aligning powers and responsibilities; establishing appropriate systems of accountability.”
	Despite the changes that the Government made in response to the Joint Committee’s report, the Bill as it stands does not meet the objectives that the Committee set. What the Chancellor proposes in the Bill and in statute is essentially to move from the current tripartite system of regulation to a new quartet system—the Treasury, the Financial Policy Committee, the prudential regulation authority and the financial conduct authority, with the Monetary Policy Committee sitting alongside—with, at best, opaque structures for decision making and accountability under the Bank of England umbrella, albeit now with not two deputy governors but three, and all with overlapping responsibilities.
	Unless we get the detail of that quartet system right, we risk delivering a more complex and less transparent system that is harder for the Chancellor and for Parliament to navigate and understand than the current arrangements. Several of those substantial misgivings have been echoed in recent weeks and days by the Treasury Committee and by many City, business and consumer groups. The responsibilities are confused; there is insufficient accountability in the new, more cumbersome system; there is insufficient focus on consumer protection, financial education and exclusion; and, as the CBI has highlighted, there is no objective for the Financial Policy Committee proactively to support growth and employment.
	We intend to work with the Government and the Treasury Committee to amend the Bill in Committee to deal with its many shortcomings. To that end, we will not vote in opposition to the Bill in its entirety on Second Reading today; we will see whether we can make progress in Committee and then decide our Third Reading vote only when we have seen whether we have been able to make the progress and the change that is needed in the Bill.

Kelvin Hopkins: Does my right hon. Friend accept that the crisis was caused in very large part by a complete failure of the auditing industry? If the auditors of all those companies and banks had spotted that worthless bits of paper, claimed as assets, were flooding the world, we might not be where we are now. Does he agree that we need to do something fundamental about auditing?

Edward Balls: There were failures in auditing, in corporate governance, in regulation—

Sajid Javid: In government.

Edward Balls: In Government regulation, in credit rating agencies and in Governments throughout the world. I shall come to some of the wider failures in a moment.

Charlie Elphicke: rose —

Edward Balls: But I will take another intervention. Let us hope that this one is better.

Charlie Elphicke: Does the shadow Chancellor accept that it was a failure of regulation when, to buy a home, people were lent more money than that home was worth? Was it not wrong to have mortgages of more than 100%, and was that not a failure of regulation?

Edward Balls: The problem was the US sub-prime mortgage market, and that the failure of regulation there rippled around the world. There were failures also of lending and regulation at Northern Rock here in Britain. I do not in any way deny that there were failures here in Britain and failures of regulation, but I do not accept that it was solely a UK failure, because it happened in America, France, Germany, Japan and all around—

Harriett Baldwin: rose —

Gordon Birtwistle: rose —

Edward Balls: I will make some progress and take both interventions in a minute.
	I understand why politically the Chancellor is so keen to blame the structure of UK regulation—the tripartite relationship between the Bank, the Treasury and the FSA. He wants to claim that his particular institutional reforms are the solution, but my advice to him is to be very careful indeed, because this was not a peculiarly British crisis; it was a global crisis. It hit countries with tripartite systems of regulation, quartet systems, twin peaks, more powerful central banks, less powerful central banks and statutory and non-statutory regulators alike, and it was not a failure of regulatory structure, but a collective global failure to see the risks inherent in the structure of the global financial services industry.
	We heard from central bankers earlier, but Alan Greenspan, the former chair of the US Federal Reserve and architect of the US system, when asked by The New York Times about his and the world’s understanding and management of risk, said:
	“The whole intellectual edifice…collapsed”.
	He was right. It was not simply a failure of structure, but a flaw in the way regulators understood the financial system, and that is why the British Bankers Association is right in its submission on the Bill to say that
	“we consider that successful regulation depends more on regulatory culture, focus and philosophy than structure.”

Harriett Baldwin: On that very point, I should like to understand where the right hon. Gentleman is coming from in his objections to the Bill. What was his philosophy
	in terms of separating the supervision of banks from the Bank of England, which has day-to-day responsibility for monitoring that canary in the goldmine—their day-to-day funding operations?

Edward Balls: I am going to come on to explain my analysis. I am not sure I fully understood the question, but I might as time passes.
	At its heart, the regulatory failure of the global financial crisis was not a failure of one approach to the institutions of regulation, but a failure of understanding and risk assessment which covered central bankers, regulators and Treasuries throughout the world. That line is not in the Conservative party Whips’ briefing, but it is absolutely true none the less.

Charlie Elphicke: Will the right hon. Gentleman give way?

Edward Balls: In a second.
	And yes, it was a failure shared here in the UK, across the Treasury, the FSA, the Bank of England—and I have to say the then Opposition, too.
	Let me remind the House that the legislation to give the Bank of England independence, and to shift from self-regulation to statutory regulation after 1997, for the first time established a Bank of England deputy governor with explicit responsibility for systemic financial stability and with an ex officio seat on the FSA board. As the seeds of the crisis were sown in the years before it, neither the FSA nor the Bank of England nor the Treasury rang the alarm bells, despite meeting every month in the tripartite standing committee.
	The Chancellor, in a second breath a moment ago, said that we are now rightly taking the Treasury out of making such decisions, having criticised the Treasury for not triggering a crisis meeting that neither the Bank of England nor the FSA asked for—a point that seemed to be deeply confused. That demonstrates not that structures do not matter, but that there is no evidence from Britain or throughout the world that a different and arguably more complex structure, the new quartet structure before us, would have spotted a crisis that neither the Bank of England, the FSA, the Treasury, the Federal Reserve, the European Central Bank nor anybody in a regulatory position of responsibility spotted.

Gordon Birtwistle: Will the right hon. Gentleman explain the regulatory things that went on when the previous Prime Minister pushed Lloyds bank into buying HBOS, which was a catastrophe in itself? How much regulation went on then, and how much discussion went on between the Bank of England and the previous Government before it was pushed through by the previous Prime Minister?

Edward Balls: Those were decisions for the Chancellor and the Prime Minister of the day. I cannot give the hon. Gentleman a blow-by-blow account or any detail of what happened between the FSA, the Treasury and the Bank of England, because at the time I was the Secretary of State for Children, Schools and Families and was dealing with the failure of the test administrators to deliver the standard assessment tests for year sixes at the end of key stage 2.

Alun Cairns: Is the shadow Chancellor telling us that he accepts absolutely no part, bearing in mind his key role in the Treasury at the time, in the failure of the financial structures in the banking sector in recent years?

Edward Balls: I have apologised to the country and have asked the Chancellor of the Exchequer to do the same. Did this Chancellor ring the alarm bell in the crisis? No, he did not. Did he worry that regulation was insufficiently tough? No; he said in 2006 that financial regulation was
	“burdensome, complex and makes cross-border market penetration more difficult”
	and that it
	“threatens the global competitiveness of the City of London.”
	If the hon. Gentleman wants to have a debate about who should apologise and who should accept responsibility, he should look at the evidence and the judgments of the past 10 years. Let us not forget that it was the Conservative party that voted against Bank of England independence and the move from self-regulation of the City by the City to statutory regulation for the first time in this country. It was this Chancellor who personally opposed the rescue of Northern Rock, saying:
	“I am not in favour of nationalisation, full stop.”—[Official Report, 19 February 2008; Vol. 472, c. 186.]
	It was this Chancellor who opposed the rescue of RBS; who negotiated the flawed and foolish Merlin deal; who refuses to enact proposals on transparency for bonuses of more than £1 million; who resists the reform of remuneration committees; who is selling off Northern Rock at a loss, prompting a National Audit Office investigation; and whose decision to cut the deficit too far and too fast has choked off the recovery and led to us borrowing £158 billion more. We will take no lectures on judgment from this Chancellor of the Exchequer.

Charlie Elphicke: A few moments ago, the shadow Chancellor told the House that he had no involvement in the merger of Lloyds and HBOS. Will he confirm that he was not consulted, that his advice was not sought and that he provided no advice in relation to that matter?

Edward Balls: Yes.
	I will set out what needs to be done to turn this bad Bill into a good Bill and to put the public interest, not party politics, in the driving seat in financial regulation. I will set out four objectives that should guide this legislation. The first is stability. We must ensure that we have a system of financial regulation that is robust in good times and in bad times. The second is to protect the taxpayer. We must guarantee that the public purse is protected from irresponsible decision making and wider systemic failures. The third is to be on the side of the consumer. There must be effective regulation, more competition and action on financial education and exclusion. The fourth is to support growth and employment. Let me take each objective in turn.
	On stability, provisions to improve the structures for financial regulation and financial stability are at the heart of the Bill. As I have said, we support the FPC and we look forward to debating its powers. We are pleased that the Chancellor has today done a U-turn and decided that the Government will take up the
	recommendation of the Joint Committee that the macro-prudential tools to be used by the FPC should be properly scrutinised by Parliament. I hope that he will ensure that that happens not just when they are introduced, but when they are subsequently changed and updated. We believe that a new scrutiny committee should be established in this House to play that role. We will propose such an amendment.
	On the splitting of the PRA and the FCA from the FSA—I know that these acronyms are hard to keep up with, but this is quite a complex system—it is fair to say that there are advantages and disadvantages. The jury is out. The Chancellor’s decision to put all this new and more complex architecture under the umbrella of the Bank of England, and arguably under the personal direction of its Governor, raises serious questions of accountability and clarity in decision making, as has been highlighted by the Treasury Committee and the Joint Committee.
	We share the Treasury Committee’s concerns about accountability within the Bank and accountability to Parliament. As the Committee stated,
	“the governance of the Bank needs strengthening and…it needs to be more open about its work. The Bank must be held more clearly to account”.
	The Committee has proposed that
	“the role of the Court of the Bank of England should be substantially enhanced. It should be transformed into a leaner and more expert Supervisory Board, with the power to conduct retrospective reviews of Bank policies and conduct.”
	The Chancellor has said that he does not want to go down that road. He has made some moves, but we think that there is further to go to ensure that there is proper accountability. Again, we will propose reforms in Committee.
	It is on the issue of crisis management and the processes for deliberation and decision making within the new, more complex structure, that we have misgivings. The Joint Committee was right to state:
	“The powers and responsibilities of the Bank of England and the Treasury during a crisis are key.”
	However, the Bill and the memorandum of understanding are deeply confused and opaque, as we have just heard from the Chancellor. We welcome the fact that the Chancellor has accepted the Treasury Committee’s recommendation that the Chancellor should be provided with a discretionary power to direct the Bank when there is a material risk to public funds. The British Bankers Association also welcomed that in its submission, but stated that it was
	“unclear that the assignment of powers now proposed is consistent with the strategic division of responsibilities envisaged by the Government, including the proposed power of direction over the Bank.”
	Article 20 of the memorandum of understanding exposes the hole. I will quote it in full:
	“During a potentially fast-moving crisis, it will become especially important to ensure close and effective coordination so as to maintain coherence in the overall crisis management process. At the heart of institutional coordination during a live crisis will be frequent contact between the Chancellor and the Governor. However, the Chancellor and the Governor may agree to establish ad hoc or standing committees at other levels to support this process.”
	Under the Bill, there will be three deputy governors at the Bank, a new Financial Policy Committee, two new sub-agencies at the Bank—the PRA and the FCA—and a new quartet of relationships, in which there are separate statutory responsibilities for the Treasury, the FPC, the PRA and the FCA, as well as for the MPC. Will the Chancellor hear any of the views in a crisis, or pre-crisis, from the statutory office holders? Only, according to the MOU, if the Chancellor and the Governor decide that he should. It states that there will be frequent contact just between the Chancellor and the Governor. It is inevitable that there will be a variety of views and dissenting voices, not only at senior levels within the Bank, but between the different statutory agencies, because those agencies have overlapping and, in certain types of crisis, contradictory objectives. Those different statutory responsibilities are being put under one umbrella organisation—the Bank of England.

Matthew Hancock: Will the right hon. Gentleman give way?

Edward Balls: In a second. I will make the argument and the hon. Gentleman can then ask a question.
	Senior and responsible figures who hold statutory offices will get to put their views to the Chancellor only if they are on one of the ad hoc or standing committees, which do not yet exist. It seems as though the Governor will decide whether they should exist at all and who should attend them. My advice to the Chancellor is that one cannot just rely on Treasury officials or gossip by the water pump. Unlike many of the Back Benchers who have intervened, I am not seeking to play a party political game; I want him to change the Bill. [ Laughter. ] Honestly. This is a deeply confused and highly dangerous ambiguity.

Matthew Hancock: rose —

Edward Balls: I will give way in a minute. Let me just make the argument, and then the hon. Gentleman, with all his experience of crisis resolution meetings at the Bank, can share his intervention with us.
	In the run-up to a crisis or during a crisis itself, having such a high degree of ambiguity in the structure and placing such a concentration of power and access to the Chancellor in the person of the Governor would be highly unstable. If the deputy governor and head of the PRA—a statutory individual, but not the Governor—the head of the FCA or the majority on the FPC believed that there would be a systemic risk from one troubled company without support from public money, the Chancellor must know about it, and in time so must Parliament. They must know about it whether or not the Governor agreed. Whether or not the Governor believed that there was or might be a risk, and whether or not he believed that the moral hazard outweighed the risk, the Chancellor must know about it.
	If the Chancellor wants a personalised, twin-peak system with all the responsibilities and accountabilities of the Bank of England located in just one person, the Governor, as is set out in the memorandum of understanding that he has negotiated with the Bank and as it seemed he did at times during his speech, the Bill is flawed. The new system will be unstable and the
	taxpayer will potentially be more exposed. All the statutory architecture of the FPC, the PRA and the FCA will be for the birds.
	If, instead, the new committees and agencies are to have a separate statutory identity with clear and separate purposes that may sometimes conflict, and with leaders who must be properly heard, that must be clarified in the Bill. That was what the Chancellor seemed to suggest at other times in his speech, and the Bill seems to suggest it in places. It must be clarified not just in the memorandum of understanding but in statute.
	The Bill sets out clearly the statutory identities of the FCA, the PRA and the FPC, which seems to suggest that the Chancellor intends to move from the tripartite system to a quartet system under the umbrella of the Bank of England—the Treasury, the FPC, the PRA and the FCA. If so, he should say so clearly in the memorandum of understanding and in legislation, for reasons of accountability, financial stability and effective decision making in a crisis. We will table amendments to that effect in Committee.

Matthew Hancock: I know that the right hon. Gentleman is desperate to defend the tripartite structure that he designed—

Edward Balls: Is that the best you’ve got?

Matthew Hancock: It is not, by far.
	The accusation that the right hon. Gentleman makes undermines his point that the Bill sets out a quadripartite system. It sets out a bipartite system, involving the Governor of the Bank of England and the Chancellor. The fact that it will be delivered through the person of the Governor, who has to manage his own institution with appropriate accountability to court, means that it is a binary system rather than a tripartite one. It will therefore be better at resolving crises at the rushed times when they occur.

Edward Balls: I made it very clear that I was not defending any particular regulatory structure. I do not think the crisis was caused by institutional structures in particular, because other countries with different structures had a crisis as well. We will seek to support the Government in reforming and strengthening the system of financial regulation, including through the addition of the FPC and the new powers of the PRA and FCA. However, all those individual agencies are being given statutory authority in the Bill.
	The Bill cannot be setting out a binary or twin-peak system, because there will be the Treasury and the Governor of the Bank of England, then underneath him there will be a deputy governor who is also the head of the PRA, another who is also on the Financial Stability Committee, the head of the FSA—also a statutory office holder—and another deputy governor on the Monetary Policy Committee. The Bill is designed to bring in not a twin-peak system but a quartet system, which will be more complex than a tripartite one.
	There may be very good arguments for having a quartet system and for splitting the FSA into the PRA and the FCA, and I support the FPC, but the system will be more complex, not simpler. The Chancellor is trying to fudge the matter by giving the impression in the memorandum of understanding that it will be
	not a quartet system but a twin-peak system, because things will be sorted out between him and the Governor.
	That is not an ad hominem point. Other Chancellors and Ministers from Governments through the ages have known very well that there is an inevitable conflict in financial regulation between the regulator, examining systemic risks from individual firms, and the guardians of the system, who worry about potential systemic risks on the one hand and moral hazard on the other. The Chancellor’s role is as the guardian of the public purse and wider financial stability, so there are different points of view.
	My advice to the Chancellor is that to try to subsume all those points of view into a separate institution away from him, without transparency and with multiple and overlapping roles for different statutory office holders, but then say, “I’m only going to deal with the Governor,” is ahistorical, deeply foolish and flawed. If the Chancellor changes and clarifies the Bill, we will be pleased, but at the moment it is a terrible fudge.

George Osborne: I hear the right hon. Gentleman’s criticism of our proposals, but what is his response to what my predecessor says? He has written:
	“The whole system depended on the chairman of the FSA, the Governor of the Bank and the Chancellor seeing things in exactly the same way. The problem was that, in September 2007, we simply did not see things in the same way.”
	My predecessor, who went through the banking crisis, says that he was dealing with a system in which differences of opinion were not accommodated. The system could not adapt to them, and there was no power of override. What is the shadow Chancellor’s response to my predecessor’s criticism?

Edward Balls: My response to the current Chancellor, who has not yet dealt with such a crisis, is “Welcome to the real world.” In reality, there will be times, as there have been, when the regulator, and potentially the deputy governor for systemic stability, will say, “We are really worried about the potential read-across from this particular large institution to the financial system more widely.” However, the Governor will say that for reasons of moral hazard and the desire not to set false precedent, he does not believe funds should be provided.
	As the Chancellor has said, it is really hard when there is a disagreement between the regulator and the prudential systemic overseer or the Governor. The Chancellor has elected to take the power to make the decision in those circumstances. I agree with that strengthening of his powers, but—

George Osborne: You had the powers.

Edward Balls: The Chancellor does not listen. He wants to play this game so much that he does not hear. I agree with the increase in his powers. He is right to take them, but he cannot use them unless the Governor comes to him and says, “I fear a crisis may be building,” having made a judgment about moral hazard outwith the views of the heads of the PRA, the FCA and the FPC.
	In the structure set out in the Bill, the statutory office holders will be formally kept out of the room under the Chancellor’s own memorandum of understanding, which is foolish. I understand why it has happened—it will be
	easier to negotiate. In all the years when previous Chancellors wanted clarity, it was hard to negotiate. However, negotiating the wrong clarity in a way that keeps information away from the Chancellor is not stabilising and in the public interest but destabilising, opaque and against the public interest. The Chancellor should take some advice from people who have seen that not working and ensure that he hears the views of the people to whom he is giving statutory responsibility in the Bill. That is my very strong advice, and I hope he will listen to it.

Brian Binley: The shadow Chancellor is telling us something illuminating—that if a Chancellor does not want to listen, no system will have any impact at all. Under the last Government, siren voices started in 2002, and the then Chancellor refused to listen. We had a systemic deficit problem, and again he did not want to listen. The shadow Chancellor has been through all this, so would he advise the current Chancellor to listen more than the last Chancellor did during the crisis?

Edward Balls: My very clear advice to the Chancellor is that when he gives people a clear statutory responsibility for a particular function and legislates for three deputy governors who are the heads of individual agencies, he should also design his crisis resolution and decision-making procedures so that his experts are in the room and he can hear the array of their views. The idea that it is better for the Chancellor to require the Bank to resolve such issues internally and come to him with one voice—one Governor, one decision maker—is a flawed structure of regulation. The point, however, is that that is not what the Bill intends. It intends for the FCA and PRA to be important institutions, in which case the Chancellor should get them in the room.

Geoffrey Robinson: Does my right hon. Friend agree that the further decision to install the Governor for eight years will make the inherent difficulty of dealing with only one person more difficult?

Edward Balls: I understand my hon. Friend’s point, but to be honest I do not have strong views on that. The reality is that there was not cross-party support or support more widely in civic society for Bank of England independence when we established it. The Conservatives voted against it. In those circumstances, it would have been difficult for the then Government to pass legislation for one eight-year term—there would have been a lot of opposition to the idea of giving one unelected individual such power for an eight-year term. This Bill moves us not only from a four-year to an eight-year term, but gives one individual massively more power than they ever had. That is what concerns me.

Charlie Elphicke: rose —

Matthew Hancock: rose —

Edward Balls: Oh God! It is a choice of two evils. Whom do I choose?

Matthew Hancock: rose —

Edward Balls: Go on then. I will give way to the hon. Gentleman.

Matthew Hancock: I am very grateful to the right hon. Gentleman for giving way again. Does not his argument—that we cannot have an umbrella regulator under which inevitable tensions are resolved, and that we must instead have separate organisations—show exactly the thinking that led to the problems in the tripartite system, under which responsibilities were segregated and separated and problems fell between stools? The FSA and the Bank were told that one was to look at the regulation of individual banks and the other at the macro-economy, and never the twain shall meet. That is precisely the problem that needs to be addressed.

Edward Balls: The Chancellor referred to his years of thinking about this legislation. I am afraid that his former adviser demonstrates the kind of muddled thinking that has got the Chancellor into this difficulty.
	I am not saying that the tripartite system is the best one. I am quite happy to go along with the shift to the quartet system—I can see the advantages of the FPC and the split of the FCA and the PRA. I am not worried because individual statutory agencies will be under the umbrella of the Bank of England; I am worried because the deputy governor and head of the PRA, who has a clear responsibility, is not part of the decision-making process. That is what I am worried about. I want the MOU to say that at the heart of the system—in pre-crisis and crisis—there will be a “clear view” group, in which the Governor and his key deputies, who will have separate and sometimes contradictory statutory responsibilities, come together with the Chancellor to make the decision.
	Even if the Chancellor—this is not an ad hominem point—has the umbrella of the Bank of England and the quartet system, he should want to hear from the person whom he appoints on a very large salary and in law to be the head of the PRA. What I do not understand is why that would not be written into the MOU. Actually, I sort of do understand. There is a history in the Bank of England of the Bank equalling the Governor of the Bank—of wanting to personalise the appointment—as the Chancellor has described. However, we cannot personalise something as complex as the proposed system. It is not just that the system is complicated; there are also tensions and differences of view.
	My right hon. Friend the Member for Edinburgh South West (Mr Darling) is quite right that it is hard to operate a tripartite system in which there are different views, but those differences will not be avoided by burying them under the table and pretending they do not exist. Had that happened at key moments in the previous crisis, the wrong decisions would have been taken.

Charlie Elphicke: I thank the shadow Chancellor for giving way once more. The Chancellor’s plan is for the financial and prudential regulation buck always to stop with the Bank of England. The shadow Chancellor has concerns about moral hazard on the part of the Governor, which suggests that he is not as strong a fan of the independence of the Bank as he has previously made out. Should we not trust a Governor of the Bank of England to work effectively with the Chancellor?

Edward Balls: The hon. Gentleman does not understand that the buck does not stop with the Governor of the Bank of England, but with the Chancellor of the Exchequer, who, in the end, is the guarantor of the public purse and taxpayers’ money, and of the wider stability of the system.
	If the Governor comes to the Chancellor and says, “In my view, and based on the views of my deputies, our collective view is to intervene,” the Chancellor has the power to do so. Rightly, the Chancellor has given himself the power in the Bill to override the Governor if the latter says we should not act. The concerning situation, which I am trying to explain—the hon. Gentleman does not quite get it—is that there will be different views within the overarching Bank of England, because it will be huge, with different, overlapping and sometimes contradictory statutory responsibilities for systemic stability, prudential regulation of individual firms and managing risks to consumers, let alone monetary policies.
	In those circumstances, my strong advice to the Chancellor, with whom the buck stops, is that he should not allow the decision to be made in the Bank of England. He should not allow the Governor to say, “I know you want to act and that you want to us to act. Thanks very much, but I’m the Governor, and I don’t think we should.” We should not allow the Governor to tell the Chancellor, “The Bank does not propose action.” I would not put myself in that position.
	The idea that such a situation is okay because the Chancellor will have heard before the meeting—from Treasury officials or on the grapevine—what those other office holders want is unbelievably naive. We are talking about the Bank of England’s legislative responsibilities and the statutory power of the office holder. In that key meeting of only the Chancellor and the Governor, the Chancellor cannot say, “I’m sorry, Governor, but other people take a different view from you.” That is not how it works.
	Shall I move on, Madam Deputy Speaker? [Hon. Members: “Hear, hear!”] That is a very important argument to which we will return in Committee.
	On Europe, that problem of complexity is mentioned in the Treasury Committee report, which states that there is
	“a risk that the single UK regulatory voice in some cases is weakened by the fact that two or more organisations will share the representational role in the various international regulatory committees.”
	The Chancellor has proposed a new committee, which is welcome, but I urge him to look harder at that arrangement. The Opposition will table amendments on that in Committee.
	Let me move on quickly, because it is important to get other things on the record on Second Reading. As I have said, on consumers, the Opposition welcome the recognition of the need for a single regulator for all retail financial services, but we will highlight a number of concerns in Committee. In particular, we want to ensure that the FCA has the powers it needs to require providers of financial services to understand its fiduciary duties.
	On disciplinary action, the Joint Committee has recommended a requirement to consult before disclosing the fact that a warning notice has been issued. We think the Government are wrong to reject that recommendation. That transparency should be in the Bill.
	The Joint Committee has also recommended that the FCA should be given concurrent powers alongside the Office of Fair Trading to make market investigation references to the Competition Commission. We do not understand why the Treasury has rejected that.
	We are also disappointed that the Government have not used the Bill to bring forward the Vickers recommendation for a review of progress on competition. We propose having one in 2013, rather than in 2015, as Vickers proposed, not least because the Lloyds divestiture has so far not produced the strong, effective challenger that we sought.
	The Chancellor says that he is in favour of financial education in schools and the Prime Minister says he is reviewing it, but they vetoed that proposal when a Bill was before the House. There is cross-party support on financial education. The all-party parliamentary group on financial education for young people is the largest such group and will propose an amendment for statutory financial education in schools for all young people.
	The Opposition are worried that the Government are allowing the banks to go backwards on financial exclusion, with charges for basic bank accounts being increased in the case of Barclays, and with new charges on basic bank account holders using automated teller machines in RBS and Lloyds. We want to strengthen the obligation on the banks to produce a universal service for all retail banks. My hon. Friend the Member for Walthamstow (Stella Creasy) will no doubt push us to ensure that the Government agree to our amendments to give new powers to the FCA to restrain the ability of firms to charge ultra-high interest rates for prolonged periods.
	On growth and employment, the CBI was right to say in its submission that
	“the Bill should ensure that the new regulatory authorities have a specific objective to focus on—and support—economic growth.”
	As it points out, the macro-economic tools used by the FPC could by their nature have a significant impact. The CBI says that the FPC should be required in statute to act
	“in a way that is consistent with promoting the medium and long-term growth of the economy”.
	The Joint Committee also proposed a strengthening of the growth obligation for the FPC, and we will propose amendments to that effect. I hope that the Government will look at this issue again, because it is important, not least for the supply of credit to small and growing businesses. Even the British Bankers Association says:
	“We would suggest that the legislation underpinning the FPC should specify that its objective is to maintain a sustainable supply of credit to the economy”.
	Bank of England figures show a £10 billion fall in lending to small businesses, and in November the Chancellor said that his new credit easing scheme would relieve constraints in the supply of bank lending in the short term. The short term is becoming the long term, because there is still no sign of that credit easing scheme. No wonder, with small business lending down and bonuses high, the Merlin deal is looking rather tawdry. At least the Chancellor has recognised that executive pay needs to be covered in the Bill, but as the Institute of Chartered Accountants said in its briefing,
	“at the moment the Bill is drafted too broadly to be effective in encouraging proportional executive pay.”
	We will look at amendments in Committee and tomorrow the House will have the chance to debate the Opposition’s call for a repeat of the bank bonus tax to provide 100,000 jobs for young people.
	This is a badly drafted Bill. On stability, there are gaping holes in decision making and accountability. On protecting taxpayers, there are flaws in the advice the Chancellor will receive. For consumers, there are flaws in the powers for referral to the Competition Commission and a worrying lack of action on financial education and exclusion. On growth and employment, there is a gaping gap that must be filled. We will not oppose Second Reading, but we want big changes in Committee. Otherwise, to protect stability, taxpayers, consumers, growth and jobs, we will have to vote against the Bill on Third Reading.

Peter Lilley: It is a pleasure to follow the shadow Chancellor, who began by promising us—somewhat uncharacteristically—a speech that would not be partisan or adversarial. I am sure that the House would have been as disappointed as much as surprised had he fulfilled that promise. I shall endeavour to do so for him because, as Chairman of the Joint Committee scrutinising the Bill, I had to adopt a more consensual approach than is sometimes my wont.
	I am grateful to the Chancellor for responding so positively to the Joint Committee’s report and taking on board the substance and spirit of most of our recommendations. I hope that we have helped to make the Bill better. This was my first experience of the Joint Committee procedure, and I found it extremely productive, not least because the members, Chairman apart, were all of an immensely high calibre, brought great experience and approached their task in a thoroughly constructive way. However, it is salutary to remind ourselves that the first ever Joint Committee was set up to scrutinise the Financial Services and Markets Bill, which this Bill effectively replaces.
	My Committee was conscious that, despite the eminence of our predecessor Committee, it did not diagnose the problems that subsequently ensued—above all the lack of focus on banking supervision and systemic stability. I hope history will not show us to have missed the elephant in the room.
	The Bill is essentially about changing the structure of regulation from the tripartite system to a twin peaks model in the light of the recent banking crisis. However, the Committee was struck by the weight of evidence for two things. First, no system of regulation can guarantee that there will never be another banking crisis. Consequently, it is essential to have a process in place to resolve the situation if banks get into problems. I urge the new FCA to make it a priority to see that major banks draw up their living wills as soon as possible. It is also essential to know who is in charge if a serious crisis erupts. We heard from the previous Chancellor that during the last crisis there were serious differences between the Treasury and the Bank of England and no easy way to resolve them. We recommended that, once the Bank has identified that a problem could lead to a call on public funds, the power to exercise responsibility should
	lie with the Chancellor, even though he may continue to leave that power in the hands of the Governor. I am pleased that the essence of that recommendation has been adopted.
	The second point made by many witnesses was that regulatory structure is less important than the culture, focus and philosophy of the regulator, as the shadow Chancellor reminded us. That culture will depend crucially on the leadership, staffing and training of the new regulatory bodies, which are beyond the scope of this Bill. The only way in which legislation can influence the culture and focus is by setting clear objectives, powers and responsibilities, and systems of accountability for each of the new bodies. We made a number of detailed recommendations to clarify those and I am glad that most have been taken on board.
	The House will be relieved to hear that I do not propose to go through all 70 recommendations item by item, but the biggest change of culture is from what has been described as box-ticking regulation to discretionary or forward-looking supervision. The Government advocated that change before the Joint Committee was established, but we found it hard to see where in the Bill the approach was given legal backing, especially for the prudential regulation authority. I hope that the Chancellor is confident that regulators will be fully empowered under the legislation to behave in that way.
	As our work progressed, the Committee became increasingly aware that, however well drafted, the Bill will have a decreasing impact on how the British financial system operates, as regulations are increasingly being set at a European level. A veritable tsunami of EU regulation is about to wash over the City, so it is vital that the UK exercises the maximum influence on decision making in Brussels. However, the architecture of the regulatory structure being created in Brussels is different from that in the UK. Theirs is based on sectors and ours will be based on prudential and financial conduct. There is a danger that our lobbying input to the EU regulators will be fragmented, divided and weakened as a result. We therefore proposed the establishment of a high level committee, chaired by the Treasury and reporting to the Chancellor, to co-ordinate the UK lobbying effort in Europe of all the bodies created by the Bill, and in international forums such as Basel. I am glad that that recommendation has been adopted in the memorandum of understanding between the various bodies, but it is obviously also important closely to consult financial firms—both British and foreign—that do business in London, Edinburgh and elsewhere in the UK, whose lobbying power also needs to be deployed in Brussels.
	I should mention that while I was in Brussels last week on other business I had the opportunity to meet Monsieur Barnier, the commissioner responsible for most of the proposed financial services legislation. I am grateful to him for seeing me. When I told him that many of us on the Committee had been surprised to learn about this tsunami of financial services legislation descending upon us, he rightly said that we should not have been. The measures were in the public domain and followed from the decisions of the College of Commissioners and the Council of Ministers. He is correct. Mea culpa—or nostra culpa: the fault is ours in this House if we pay too little attention to what is brewing across the channel until it is too late. The
	European Scrutiny Committee does sterling work, but I wonder whether our procedures need to integrate its work more closely into our process of scrutiny on the Floor of the House, bringing Ministers here to explain our negotiating position at an early stage.

Kelvin Hopkins: As a member of the European Scrutiny Committee, I appreciate what the right hon. Gentleman is saying, but does he not agree that it would be strengthened if the European Standing Committees had permanent instead of ad hoc membership which means that the work is not taken so seriously?

Peter Lilley: That is probably a good point, and I hope that the relevant powers will listen to it.
	When Monsieur Barnier came to London a few weeks ago, he defended his legislative programme as necessary to creating a single market. If it would create a single market, most Members on both sides of the House would wholeheartedly support it—I certainly would—but I cannot see how any of the measures will open up a single new opportunity for financial companies to trade outside their own national markets across the single market beyond what is already open to them. Most if not all of the directives are about centralising regulatory powers over the financial sector in Brussels rather than in nation states.
	Monsieur Barnier did not dispute that, but he argued that the financial crisis had been caused by lack of regulation of “British and American banks”, so it was essential to impose regulation at an EU level. I gently reminded him that the credit crunch had been sparked when a French bank, BNP Paribas, announced it could no longer put a value on its property funds, that it subsequently emerged that continental banks had far higher levels of gearing than Anglo-Saxon banks, and that the current euro crisis is, at its heart, a banking crisis, as continental banks are so under-capitalised that they cannot absorb the losses on their holdings of sovereign debt and their Governments cannot afford to recapitalise them openly and immediately, as British and American Governments did.
	Monsieur Barnier also argued that a single market requires a single rule book. However, that was promptly negated by his promise that that does not mean a one-size-fits-all regime and that
	“we also need to allow considerable flexibility for national supervisors”.
	Either there are separate national rule books, or there is a single EU-wide rule book. We cannot have or pretend to have both—or rather we can, and in a sense we do. Under the second banking directive, any bank or similar financial firm can operate anywhere in the EU under the supervision of its home authority, so any individual bank can operate under a single rule book throughout Europe. Of course, that rule book must obviously meet minimum requirements agreed at EU level. I believe that that is the model that we should retain and encourage across Europe within the single market.
	That brings me to the issue of the draft fourth capital requirements directive, which will implement the Basel III agreement. The Committee discussed it at length with Mr Enria, chairman of the European Banking Authority, who strongly defended the EU’s decision to set not only a minimum level of reserve that each country must require its bank to hold, but a maximum level that banks can be required to hold. We subsequently wrote
	asking for clarification of his reasons for setting a maximum, but found his arguments unconvincing. His claim that our setting a higher rate would somehow siphon off funds from other countries, or that it would be unfair if we made our bank safer than those of other countries, were not entirely convincing.
	In light of the Committee’s experience, my interview with Monsieur Barnier and the evidence from Mr Enria, I believe strongly that the Prime Minister was right to seek to reintroduce what Monsieur Barnier called a dose of unanimity in decision making on financial markets. I hope that the Prime Minister will continue to press that with the support of both sides of the House.

Nick Brown: Along with my hon. Friend the Member for Leeds East (Mr Mudie), I represented the parliamentary Labour party in the Commons on the Joint Committee of both Houses that gave the Bill pre-legislative scrutiny. It was a pleasure to serve under the chairmanship of the right hon. Member for Hitchin and Harpenden (Mr Lilley), whom I thank for his fair-minded chairmanship. I also thank the impressive array of witnesses who gave up their time—in some cases very valuable time—to help the Committee in its deliberations.
	I echo the right hon. Member for Hitchin and Harpenden in commending the Joint Committee’s report to the House. The Bill essentially addresses itself to the structure and powers of the financial services regulator. It does so at a time when the whole world is facing up to a debt and liquidity crisis and when the financial services sector is viewed by the public with even more distrust than is normally reserved for politicians and journalists.
	I do not want to spend much of my remaining eight minutes dealing with the point on which the Chancellor focused. He certainly decided not to waste a good crisis. He focused on the structural questions involved. I do not think that it is primarily a structural question, and that view was shared by the Committee. Structures and architecture are not the root cause of the problem. As my right hon. Friend the shadow Chancellor said, other countries with different regulatory structures faced similar problems. It is not a structural question alone; it is also about the power, scope and information available to the regulator.
	It is also—dare I say it—about the behaviour of the regulated. Effective regulation flows from getting the culture, focus and philosophy of the regulator right, as we concluded in the pre-legislative scrutiny report. We as a House should be far less tolerant of the evasive and litigious behaviour of some of the regulated. We should expect the regulator to take an interest in gathering market intelligence and anticipating emerging problems. The focus on that is one of the strengths of the proposed new architecture. It will involve co-operating closely with the regulatory authorities in other jurisdictions, particularly the United States.
	If we believe that it is necessary in the broader public interest to regulate the financial services sector trans-nationally, why are we so acquiescent in the existence of a flourishing shadow banking marketplace? What defensible public purpose does that marketplace serve? What is the justification for the almost impenetrable complexity of its transaction structures? Surely the only two possible
	reasons for it are to avoid transparency and therefore evade the regulator or, somewhere in the details of the complex structures, to turn a small additional margin of profit on very large sums of money at the expense of the unwary. I ask again: why is that in the broader interests of society?
	The Committee went to some trouble to establish the balance of power between the proposed new European regulatory architecture emerging from the Basel III process and the new United Kingdom structures. The question is important, and I am pleased that the Chairman of our Committee referred to it. The Commission’s intention is that the European Union’s regulatory regime will be mandatory for all European member states, including us, and will be asserted centrally, not legislated for by national legislation.
	The Prime Minister has assured the House that it is the Government’s intention that the European Union regulatory regime should apply to the United Kingdom. The European Union regime will act as a constraining factor on UK regulators, a point that the right hon. Member for Hitchin and Harpenden made in his speech and that I hope the Minister will address when he winds up the debate.
	As I argued earlier, the forward-looking, judgment-based regulatory regime must be well informed if it is to function adequately. I thought that the Governor of the Bank of England was clear on that point when he argued that the Financial Policy Committee should have the power to request information from regulated firms and determine the time frame in which that information should be sent. The Chancellor, in his address to us, seemed to support the regulator having that power. If that is his view, it is mine as well, but to the Committee, the Government seemed to be arguing for a more tortuous process that would require Treasury consent and even parliamentary approval. That does not capture the sense of urgency and the need for firmness. We should back the regulator.
	While I am on the subject of timely intervention, the Bill is said to be admirably clear on who is in charge during a crisis. The Chancellor made much play of that in his address to the House. The trigger will be the potential need to call on public funds. It is essential, though, that the Chancellor be alerted, at the earliest possible moment, to an emerging situation of that kind. If there is any doubt about that, the Chancellor should get the benefit of the doubt. If he is told only at the last minute, the Chancellor will not be left with a wide range of choices, and none of them will be particularly palatable.
	The effectiveness of judgment-led regulation will rest on the quality of the individuals working for the regulator. The Governor argued for a dedicated team of public servants working in a public-service culture who are able to look to a dedicated career in regulation. I believe in public service and share the Governor’s point of view. Such a career should be well-paid and the public servants should be beyond corruption and intimidation. They should be protected by transparency, powerful criminal sanctions and a new parliamentary committee acting as Parliament’s interface with the Governor and his deputies as regulators.
	The regulatory system should focus on the protection of consumers and the taxpayer.

Kelvin Hopkins: Everything that my right hon. Friend is saying suggests that we are re-empowering Parliament when it comes to how our economy is run, which is the opposite direction from the one in which we have been moving in recent years. Is that not welcome, and does it not strengthen our democracy?

Nick Brown: We need to go further. How Parliament interacts with the Governor in his new role as regulator has not been properly addressed in the Bill, but we need to think about that carefully. Although finding fault with every other structural problem with financial services, the Government propose no change to the arrangements for the accountability of the regulator to Parliament. Accountability, therefore, is through Ministers, primarily Treasury Ministers, or through the work of Select Committees, primarily the Treasury Committee, which is one of the hardest-working Select Committees in the House of Commons. We should consider whether that is adequate. As the new arrangements come into effect and settle down, alongside the recommendations from the Independent Commission on Banking, surely there is a need for an authoritative forum in which emerging issues can be examined, ideas explored and recommendations made. Public discussion and transparency are important safeguards.
	The other place, too, has a legitimate role in these arrangements. Acting as a check and balance on elected representatives, and public life more generally, is what the other place, as currently constituted, does well. In any event, we should consider very carefully whether we are satisfied with the present arrangements alone. Perhaps this is a suitable subject for a separate debate.
	Private sector financial services in the United Kingdom are underpinned by the public sector in a number of important ways. The most significant are the £85,000 deposit compensation limit guarantee; even more importantly, the Bank of England’s role as lender of last resort; and the need to intervene when private sector misjudgments threaten a collapse of the banking system. We, as the people’s representatives, should take an interest in this democratic deficit.
	There is a third point to consider. Each of us is elected to represent our fellow citizens. There is nothing more frustrating and upsetting for a constituency MP than to know that individual constituents are faced with an injustice and that there is no effective remedy. Such situations occur far too frequently in the financial services sector. One thinks of the present Arch Cru scandal as the latest of a depressingly large number of similar scams.
	I welcome the fact that the Bill gives the FCA powers to intervene in the case of individual products and their promotion. The Bill allows consumer bodies to make super-complaints to the FCA and facilitates a reform of consumer credit with a view to better protecting consumers. That is welcome too. It is important to ensure, however, that the FCA’s strategic objective is clearly stated. I was taken by the suggestion from Which? of
	“ensuring a fair and transparent market in financial services”,
	which is reflected in the Joint Committee’s recommendation that the FCA’s strategic objective
	“should be amended to focus on promoting fair, transparent and efficient financial services markets that work well for users.”
	That is more specific than the Bill, as drafted, which refers to
	“ensuring that the relevant markets function well.”
	The phrase is too general—how else would one want markets to function? There are still concerns that section 348 of the Financial Services and Markets Act 2000 is too restrictive and discourages the publication of information. I hope that the Minister will have something to say about that, because I know that the Government propose to address the matter in Committee.
	We are expecting a lot of the new structure and are placing yet more responsibility on the shoulders of the Governor of the Bank of England. The new role has been described as similar to that of a sun-king presiding over an empire. There is clearly a democratic deficit in the new structure that ought to be addressed—

Dawn Primarolo: Order.

Nick Brown: I say: “Every man a king, but no man wears a crown.”

Dawn Primarolo: Order. The right hon. Member is not supposed to take up other people’s time.

David Ruffley: It is a pleasure to follow the right hon. Member for Newcastle upon Tyne East (Mr Brown), most of whose comments I endorse. The regulators failed to see the crisis coming and were asleep at the wheel, so it is entirely right that the Bill abolishes the Financial Services Authority. In so doing, however, it gives new extensive powers to the Bank of England, and that poses a problem: will the newly created bodies—the Financial Policy Committee and the Prudential Regulation Authority—be as accountable as possible? In that respect, the right hon. Gentleman was right to touch on the democratic deficit.
	I had the privilege of sitting under the chairmanship of my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) on the Joint Committee, and I also sit on the Treasury Committee. Those two bodies have one thing in common: in respect of the Bill, both are concerned more than anything with the accountability of the Bank in its new form and with its new powers.
	I want to raise three points that the Government have not yet taken on board—they have taken on board some good points raised by the two Committees, but some are outstanding. First, to whom exactly will the PRA and the FPC be accountable? Let us remember how important and powerful these two bodies will be. The FPC will have an overarching responsibility to maintain financial stability, and it will be chaired by the Governor of the Bank of England. The PRA, also chaired by the Governor, will have macro-prudential responsibility for supervising significant financial institutions, particularly the banks. They will also have all sorts of macro-prudential tools, the details of which are yet to be designed—but they will include things such as loan-to-value ratios for mortgage lending, leverage ratios and so on. Those are hugely important tools that will affect the livelihoods and household finances of all our constituents.
	We are vesting that great power in two bodies, both of which will be sub-committees of the court of the Bank of England. The Treasury Committee was concerned about that and suggested that the court was not fit for purpose when it came to scrutinising the work of the
	FPC and the decisions of the FPC and the PRA, and it suggested abolishing the court and replacing it with a supervisory board with a greater spread of technical expertise on monetary and fiscal policy. At the moment, the court—I do not wish to be rude or impolite—is a rag-bag of industrialists, trade unionists and consumer champions, most of whom, frankly, do not have the skill, expertise or background knowledge to judge whether the FPC and the PRA are making sensible decisions. That is why we need a supervisory board to replace the court.
	As the Chancellor said in his opening speech, there will be a new oversight committee for the FPC and the PRA. However, that does not meet the concerns of the Treasury Committee, for one simple and stark reason. The terms of the oversight committee to which the Chancellor referred make it quite clear that it cannot pass judgment on, or conduct ex-post reviews of, the decisions that the FPC and PRA have made. All that the members of the oversight committee can do under the Bill is see that the FPC and PRA arrived at their decisions in a proper fashion. They cannot make a judgment on their merits. That point was returned to again and again in the evidence taken by the Joint Committee on the Bill and the Treasury Committee, and the Bill does not answer it.
	The second point that I wish to raise is about the role of the premier Committee in Parliament, the Treasury Committee, which is charged on behalf of Parliament with scrutinising the new bodies, the FPC and the PRA. The Treasury Committee has made it quite clear that there should be a statutory responsibility for either the court, if it remains, or, as we would prefer, a new supervisory board, to respond to any request for information made by the Treasury Committee, on behalf of Parliament. The Bank’s record on responding to requests from the Treasury Committee is not bad, but it is not perfect. I adduce as evidence for my proposition the fact that at the end of last year the Governor—quite wrongly in our view—did not think it appropriate to produce the minutes of the court of the Bank of England for the Treasury Committee, to show us what it was saying and doing at the time of the RBS meltdown.
	My third and final point relates to the composition of that terribly important body, the Financial Policy Committee. The Treasury Committee strongly recommended—and still recommends—that a better balance must be found between the internal and external members of the nine-person Financial Policy Committee. My Committee proposed that the ratio of internal to external members should change from 5:4, which is what the Bill says it should remain, to 4:5—in other words, that a majority on the Financial Policy Committee should be external members. Why? For one simple reason. One of the besetting sins of the regulatory regime and the regulators who worked in it up to and during the crisis was that they were subject to group-think. They were all reinforcing each other’s prejudices and established views. It was disastrous for UK regulatory management. My Committee believes that one way of countering that propensity towards group-think is to have externals who are not full-time executive members of the Bank of England, such as we have at the moment. Of the six professionals—so to speak—all of them except the chairman of the FCA are Bank of England officials. Many of us think that that is simply not a sustainable proposition.
	The Government have made concessions and done some thinking since the first publication of the Bill, as well as listening to the two Committees, which have made some powerful suggestions about the better accountability that the two powerful new bodies in the Bank of England must demonstrate to Parliament and the British people. Progress has been made, but there are three issues, which I have highlighted, that are still on the table. The Government have not taken them up, and the Treasury Committee insists that they need to be recognised in the new regime and new settlement. It is in that spirit that I make those points—speaking, I might add, for my Treasury Committee colleagues who are in the far east on an important fact-finding mission, who would make these points if they were here. Those points need addressing, and I am sure that in the Public Bill Committee they will be, but it is important that the record should show that the Treasury Committee is still not satisfied.

George Mudie: May I first align myself with the remarks that my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) made about the Chairman of the Joint Committee on the Bill, the right hon. Member for Hitchin and Harpenden (Mr Lilley)? The fact that I was still on the Committee at the end of its sittings shows that he was indeed tolerant and patient. I would like also to put on record my admiration for, and thanks to, the Chairman of the Treasury Committee, who is in China at the moment. We have had an arduous 18 months on the Committee going through the regulations. The fact that there are three members of the Committee here today is nothing to do with our being unable to get on the plane to China; it is more that we are so dedicated to regulation that we chose to be here.
	I want quickly to raise three matters. I welcome the Chancellor’s open-mindedness—it was not a U-turn; that was an unfair description—in accepting the point about secondary legislation being inappropriate for the macro-economic tools. I hope that he will show the same open-mindedness on the three matters that I will raise, because so far the Government have not accepted the Joint Committee’s or the Treasury Committee’s views on them.
	The first issue is the objective of the Financial Policy Committee, which is to ensure the financial stability of the financial sector. One difficulty raised by many of the witnesses before the Treasury Committee and the Joint Committee was that no one can come up with a definition of “financial stability”. That clearly presents those responsible for oversight of the committee with obvious difficulties. On what basis do they judge the committee’s activities and performance? Is the issue stability alone? As the Chancellor himself stated in evidence, we should not be seeking the “stability of the graveyard”. I think of the unfortunate individual in hospital who is seriously ill in the high-dependency unit, but whose relatives are assured that he is in a stable condition. Just as in that example, stability in economic terms does not equal a healthy economy.
	Arising from that—and equally important—the relevant question for all sectors to emerge from our witnesses was: in exercising its power to seek financial stability in
	the financial sector, will the Financial Policy Committee ignore the effect that that might have on the other sectors, in the real economy? To be fair, the original suggestion that the Government advanced was that the Financial Policy Committee could not take decisions to achieve financial stability if it believed that those decisions risked medium to long-term economic growth. An interesting and important point is that it was originally left to the FPC to make that judgement itself, with no mechanism for the Chancellor to have his say. The negativity of that formulation led HSBC, the British Bankers Association and several other witnesses to the Joint Committee to suggest that the relevant clause be redrafted, to give the FPC a positive duty to support economic growth.
	I would like to put on record what was said by Stuart Gulliver of HSBC and Bob Diamond, neither of whom would immediately be recognised as friends of mine, or otherwise. Stuart Gulliver said:
	“the…Treasury should be setting out what the Government’s goals are for growth, employment and job creation and saying to the FPC, ‘Use your macro-prudential tools to ensure that you achieve the Treasury’s goals.’”
	Just as interestingly, both he and Bob Diamond cited the experience of the Pacific economies that actively manage the flow of credit and even its sectoral allocation, using a variety of macro-prudential tools. The people in small businesses and medium-sized enterprises would be very interested in that. The Joint Committee agreed a recommendation that the Bill be redrafted so that, like the MPC, the FPC must have regard to the Government’s growth objectives and other economic objectives. The Government have responded to the Joint Committee’s points on other related items in this area, but have not responded in favour of the more positive and widely supported suggestion that the FPC should be given a brief to have regard to the Government’s growth and economic policies. That is a real worry, and I hope that the Government will approach it with an open mind in Committee.

David Ruffley: I am following the hon. Gentleman’s argument closely. Does he agree that it is imperative for the Governor of the Bank of England to return to Parliament to explain in detail the indicators that he thinks should be used in the attempt to get a handle on the definition of financial stability, and that we need a full and frank debate on what those indicators should be?

George Mudie: That is an important point. I think that it was Charles Goodhart who raised the question of indicators. They are certainly interesting, but on a wider scale, I think it more important to establish that, given that the Monetary Policy Committee is linked to a target of 2% inflation, the Financial Policy Committee should be linked to growth employment measures that ensure that there is no “safety low level” of stability, and be forced to have a look at the problems of the real world out there.

Steven Baker: The hon. Gentleman’s speech seems to allude to a search for an equilibrium that never exists in the real world. Does he think that that disconnection between the reality of life as a dynamic process and the search for stability is at the heart of the inability to define financial sustainability?

George Mudie: I think that it is more an indication of the way in which the banks have moved away from the real world into the investment world, computer schemes, and making money by using money, rather than funding the small and medium-sized enterprises on which we depend for a rebalanced economy.
	This is a very similar—Madam Deputy Speaker, I think that I have thrown away my speech.However, the second issue that I want to raise is that of accountability. I want to draw the Chancellor’s attention to the danger of giving great powers to unelected officials, which can have a significant effect. One of the witnesses raised the parallel of the responsibility given in the sphere of health to the National Institute for Health and Clinical Excellence. NICE determines the availability of drugs and treatment, and when a particular decision is made, elected politicians are under great pressure to reverse it. It does not wash with most constituents to tell them that the decision is one for the regulator. They may understand that politicians have given up the power, but they rarely accept that we do not retain the ability to alter a decision that is painful to them—and why should they?
	That is very similar to what will happen when powers are given to the Bank of England and the Financial Policy Committee. The Chancellor is handing power to the Bank on matters that will inevitably extend beyond the financial sector to the real economy. One example is interpretation of the financial stability objective. The Chancellor is given the opportunity to set an annual remit for the FPC, but to ensure the Bank’s independence, the Bill accepts that the FPC may refuse to accept the Chancellor’s remit. The Joint Committee recommended that the Treasury, not the Financial Policy Committee, should have the final say on the interpretation of the remit. It did suggest, however, that the FPC should make public its objections to the annual remit, and should alert the Treasury Committee. Giving evidence to the Joint Committee, Lord Burns said:
	“if there is any part of this set of proposals that concerns me, it is probably to do with the governance of the FPC in relation both to its accountability to Parliament through the Treasury and the extent to which it can be defined as ‘independent’.”
	That is a stark reminder of how much is being conceded by the Chancellor. His annual remit on how the Financial Policy Committee should interpret and pursue the financial stability objective can be disregarded by the committee. To illustrate the importance of that, I cannot do better than to read out the words of the Joint Committee:
	“The tools available to the FPC could allow a reversion to a level of central intervention in credit flows that has not been practised in the UK since the period of ‘Competition and Credit Control’ in the early 1970s. Such interventions would, for example, often affect mortgage availability and loans to households and companies. Given the wide range of possible interventions, and absence of any quantifiable target for financial stability corresponding to the inflation target for monetary stability, the FPC’s decisions will be more politically controversial than those of the MPC.”
	Bizarrely, the Government have not accepted that when there is a difference, the FPC must accept the will of the elected Government, but have accepted that the FPC may make its defiance public. The Chancellor is not only allowing the FPC to defy him, but encouraging
	those unelected officials to tell the world that they have done so. That strikes me as a very strange working method.
	The third issue that I wish to raise concerns a different aspect of a matter that has been discussed by the Front Benches. Who is in charge in a crisis? That is the question that was asked by Lord McFall at the time of the Northern Rock crisis. It shook the regulators, and it voiced the thoughts of the general public. There is a genuine wish to prevent such a situation from arising again. The accepted answer is that the Chancellor is responsible, and that therefore he should be in charge when there is a crisis. That seems sensible and straightforward to most people, but not to the territorially sensitive Bank of England. Nigel Lawson heard about the Johnson Matthey crisis, and the need for him to commit Government money, on the morning when it broke. He was understandably upset. Before the resort of using public money is accepted, the Chancellor should be made aware of the difficulties.
	I shall now depart from my script, because I have only a minute left. We in the Joint Committee and in the Treasury Committee were trying to be helpful to the Chancellor. We made a recommendation, which the Chancellor accepted, that when a crisis arose or he was warned of one, he should take direct command. The memorandum of understanding—this is a different point from the one raised by the shadow Chancellor—has been nicely arranged, by the Bank, I presume, to ensure that even in those circumstances he does not have direct control. The Bank remains operationally in control, and the Chancellor can speak only about matters relating to the public funds to be used to deal with the crisis. We wanted to give him the opportunity to make a full range of decisions to avoid the use of public funds, and I hope that the Minister will consider that.

Stephen Gilbert: It is a pleasure to follow the eloquent contribution of the hon. Member for Leeds East (Mr Mudie). He declared to the House that he had dropped his speech, but I do not think that anyone noticed. I intend, for all our sakes, to hold on to my own speech.
	I want to raise three issues. First, I want to speak about the enhancement of consumer protection that the Bill provides, and I hope that my comments about that will be echoed by the hon. Member for Walthamstow (Stella Creasy). Secondly, I want to discuss the relationship between the FCA and the PRA. Thirdly, I want to develop a theme introduced by my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley): the representation of British interests overseas.
	Let me say in passing, however, that I share the concerns of other hon. Members about the oversight of the new macro-prudential powers which may be need to be handed to the Bank of England, and which I believe could fundamentally alter vast swathes of the UK economy. It has already been mentioned that the ratio of mortgage lending may be one of the macro-prudential powers that the Bank of England wants to take on. It may be necessary to regulate an individual’s debt levels, and to regulate the debt exposure of small and medium-sized enterprises. All that needs proper parliamentary scrutiny, and I was pleased with the Chancellor’s response to my intervention on that point.
	Let me begin with consumer protection. As we know, the Bill will establish a new code of conduct business regulator, the financial conduct authority, which aims to protect consumers, promote, competition, and ensure that there is integrity in markets. Many consumer groups, including Citizens Advice and Shelter, have welcomed the FCA’s proposed objective of promoting competition in the interests of consumers. It is welcome that the FCA will have additional tools to deal with business conduct that is causing, or is likely to cause, consumer harm, to take action on products, to promote greater regulatory transparency, to tackle misleading financial promotions and to enforce the requirement to satisfy the regulator that a business model is suitable.

Lorely Burt: Does my hon. Friend agree that short-term consumer credit, payday lenders and the managing of consumer debt companies will now be much more strongly regulated, as has been called for by Members on both sides of the House?

Stephen Gilbert: My hon. Friend is quite right; that is a welcome step forward, although there are some bits that still need to be tidied up. I shall come to those later.
	It is particularly welcome that the FCA will have a super-complaint power. This will allow Citizens Advice and other consumer bodies to use their evidence of widespread consumer harm to make complaints on behalf of all consumers, including those who might not know how to complain, and those who do not understand that their rights have been infringed. To make this new era of consumer protection effective, however, the Bill should require the FCA to respond quickly and effectively to super-complaints concerning widespread consumer harm, and I ask the Minister to consider what improvements could be made to the Bill in that regard when it goes into Committee.
	As we know, the Bill sets out a framework for moving the regulation of consumer credit lending to the FCA. That, too, is welcome. But it is vital that not only lenders but debt collectors, brokers, debt managers and retail lenders that sell insurance products are regulated by a single, strong regulator. I believe that the responsibility for all that regulation should go to the FCA. In recent years, we have seen a succession of widespread consumer problems with financial products and services, including the mis-selling of payment protection insurance, poor lending and arrears collection practices in sub-prime mortgage markets, unacceptable debt collection practices by major credit providers, irresponsible lending of unsecured credit, and the ongoing saga of bank charges. It is clear that a change in the way in which consumer credit is regulated is necessary to protect consumers better in the future. I am looking at the hon. Member for Walthamstow as I say that.
	Under the Consumer Credit Act 2006, the Office of Fair Trading has too little power or policy autonomy to respond quickly to emerging consumer harm, particularly when it concerns new products, services and business practices. That makes it easy for firms engaged in bad practices to target vulnerable consumers. It also undermines attempts by the sector to police itself, and makes the task of regulatory enforcement much harder. The level of financial penalties is also too low to act as a deterrent.
	The OFT does not have the power or resources proactively to supervise regulated firms, or to identify and stop bad practice at an early stage. OFT guidance does not have the quality of rules, the breach of which could lead to a sanction, so enforcement is also slow. In respect of payday lending problems, for example, the OFT appears unable to make a specific rule limiting the number of times a loan is rolled over, or binding provisions on how a payday loan firm should ensure that it is lending responsibly, or to require a firm to deal with borrowers in financial difficulty in a specific way.
	The Consumer Credit Act conduct regime is highly enforcement focused. There are few powers to pre-empt causes of consumer harm, or even to require firms to compensate consumers who have suffered harm. I think that all Members would agree that the consumer credit market needs a regulator that can regulate products and prevent consumer harm before it becomes widespread.

Stephen Lloyd: I strongly agree with the direction of travel that my hon. Friend is taking, but does he acknowledge that there is a slightly slanted argument on this matter, because the APR on bank overdrafts that have not been arranged is often far higher than that charged by the better known and perhaps more reputable payday loan companies?

Stephen Gilbert: I am grateful to my hon. Friend for making that point. I believe that all financial services should be underpinned by two principles: one is transparency, in that the consumer needs to know what they are getting; the other is that interest needs to be proportional to the length of time and the amount borrowed. I am sure that the record will reflect what my hon. Friend has added to the debate.
	Transferring responsibility for consumer credit regulation to the FCA will also have the advantage of providing one umbrella regulator for credit, insurance, broking and debt management. It is vital that we do not allow a two-tier system to develop, with mainstream credit being regulated through the FCA and a reduced number of licensable firms being regulated under the CCA by a small successor to the OFT with lesser powers and diminishing resources. I am therefore pleased to see the direction of travel that the Government are taking on this matter.
	My second point relates to the prudential regulatory authority and the FCA. It seems anomalous to give the PRA a veto over the FCA. This could have the effect of putting the prudential strength of banks above consumer protection. The Bill might allow the PRA to veto the FCA taking action against a party for market abuse. If the PRA were to veto the FCA’s taking action to protect consumers, it would have to tell the Treasury that it had done so, but it could also prevent the Treasury from informing Parliament. In my view, that provision needs to be reversed.
	Turning to the need for the United Kingdom to maintain effective representation abroad, it is clear that the proposed new supervisory bodies will need to co-ordinate in order effectively to represent our national interests at European and international levels, including with the new European supervisory authorities. The financial services industry, the Government and the UK regulatory authorities all have an important role to play in representing the UK in international discussions on financial regulation.
	The Financial Services Authority and other UK regulatory bodies have a strong record of constructive engagement with, and influence in, European and other international bodies. Indeed, to give the House just two examples, the former head of the FSA’s international division now leads the European Securities and Markets Authority, and the Governor of the Bank of England has a leading role on the European Systemic Risk Board and on the governing committees of the Bank for International Settlements. The International Monetary Fund’s recent report on the future of regulation in the UK has also said that the effective international co-ordination of the UK’s position is important.
	I therefore welcome the Government’s recent statement that they accept the case for a committee on international co-ordination, and I want to underline to the Minister the need to get that right. There will not be a perfect match between the scope of the responsibilities of the new UK bodies and those of European and other international groups, so there is a requirement for co-ordination between different UK bodies to represent the British interest effectively. The proposed measures in the Bill will oblige the new UK regulatory bodies—Her Majesty’s Treasury, the Bank of England, the PRA and the FCA—to sign a statutory memorandum of understanding and to work together.
	I believe that TheCityUK was right to say that effective international co-ordination is so important to the broader UK economy, as well as to the financial sector, that a dedicated group or committee should be appointed to give sufficient priority, resources and responsibility to mobilising the UK’s European and international representation. It proposes the formation of an international co-ordination committee with specific responsibility for leading the UK’s representation on European and international committees. I commend that approach to the House.
	I welcome the Bill, but I ask Ministers to look again at the balance of power between the FCA and the PRA, at the inclusion of all CCA activities within the remit of the FCA, and, above all, at the need to ensure that the United Kingdom retains a strong and coherent voice externally.

Stella Creasy: This is the third time that we on this side of the House have proposed legislative action on the high-cost credit market in the UK. As Mae West said:
	“I’ll try anything once, twice if I like it, three times to make sure.”
	I can tell the House that we are absolutely committed to the argument that something needs to change drastically in our consumer credit markets. This legislation offers the potential to address some of those concerns. We have had a positive debate today about some of the large-scale problems in our financial markets, but I want to set out the other picture. I shall talk about those people at the other end of our financial markets, the people who are called the “under-banked”. There is now irrefutable evidence that millions of people in this country are unable to access credit in a manner that is positive and constructive to their financial health. We should consider that one in six of us is now what are called “zombie debtors”—paying off the interest on our debts, not the capital.
	A perfect storm has hit UK consumers in the last couple of years as pay freezes, rises in unemployment, rises in the cost of living and a lack of regulation of the consumer credit market has made us a fertile territory for the high-cost credit industry. It is not by coincidence that these companies have flourished in Britain in the last couple of years, as there has been a 200% increase in the numbers of people borrowing from payday loan companies and a similar increase in the amount of money they are making from British consumers in the last 18 months alone.
	With a mind to what we could do to the Financial Services Bill, let me set out what the prices are and what they mean to British consumers. Many Members will be familiar with my own personal travails with a company called Wonga whose rates are 4,214% representative APR in a year. Some may be familiar with QuickQuid whose rates are 1,734% representative APR, while some may have come across the Money Shop in their constituencies, with a mere 219% representative APR. Some may be familiar with some of the newer players in the market—for example, Ferratum, a major European payday loan company, which has a mere 3,113% APR. Then there is Peachy Loans, which will lend people £100 at a time, with £15 interest every 10 days. That works out at a representative APR of 16,381% every year. This is not to mention companies like Borrow, recently advertising themselves on the radio and TV, which encourages people to borrow £10,000 a year at an APR of 68%.
	Before we discuss any legislation, it is worth thinking about this industry and how it operates. It wants to paint itself as the new industry, the new form of financial credit that Britons are crying out for, that the Facebook generation wants, that is online, quick, easy and consumable. There is another side to this story, however, as many will have seen the people who are struggling because of the toxicities in this market. When we know that 30% of payday loans are taken out to pay off other payday loans, that should tell us that something is going drastically wrong that needs addressing.
	Payplan, a debt charity company, says that 46% of its clients had six or more payday loans in the last year alone. This is not a short-term temporary measure; this is a way of life for millions of people in our country nowadays. More than half of the people going to Payplan for debt advice owed more than £500 to these companies, and 61% had more than one at a time. Most crucially, 86% of its clients were using the loans for basics—food, transport and the basic costs of everyday living, not luxuries. This is not a market that is working for British consumers; it is not an industry that wants to lend people money and have them pay it off within a reasonable length of time. It is an industry that wants to lend to people, to keep lending to them and to keep taking money from them, drips at a time, raising the interest rate as it goes along, and adding money to the bill every single month.
	The rates in themselves mean that debt is more likely. That is the challenge we have to address with our consumer credit regulations. We are talking about people who are short of cash now. They are not using it as a temporary stop-gap; they are struggling in Britain today. We need to be aware that 7 million Britons last year put their mortgages on their credit cards and 1 million people used payday loans to pay their mortgages. That
	is the sort of challenge we have to address. It is also the opportunity we have with the new financial conduct authority.
	I welcome the fact that Ministers have listened to the advice I gave them on 16 June last year when I suggested that the FCA could indeed take over this role and look at this industry. I welcome that, as I say, but I know there are issues over how the FCA should deal with the promotion of competition and over the real powers that the FCA needs to address these companies and to regulate this market. Indeed, I note that other consumer organisations such as Consumer Focus, Citizens Advice and the Financial Services Consumer Panel have written to the Minister asking for the FCA to have specific powers for product intervention. This must go beyond the point, which I recognise the hon. Member for St Austell and Newquay (Stephen Gilbert) mentioned, about the paucity of the response the Office of Fair Trading has been able to make to these companies. I know all too well myself from when I tried to get the OFT to act on companies that did not display their APR how difficult it is to make progress. This goes beyond advertising and people knowing what the price is. It is about the fact that the prices reflected in the APRs I mentioned show that this is not a free market and that competition in itself is unable in this market to ensure that consumers are not put in detriment.
	I know that many Members agree that things could be done, so let us give the FCA the power to intervene to make sure that there is competition and to use price as an indicator of competition. Let us give the FCA the real power it needs finally to address this country’s legal loan sharking. I agree with the hon. Member for Eastbourne (Stephen Lloyd) that there is a challenge with unauthorised overdrafts and credit cards, so let us use the FCA finally to make good on this Government’s broken promise to tackle the exorbitant rates on credit cards and unauthorised overdraft charges and cap those prices.

John Hemming: I share the hon. Lady’s concern about the very high levels of interest rates charged on certain debts. Does she share my concern about the effect of continual late payment fees, which have exactly the same effect?

Stella Creasy: Yes, I agree, and I hope that Government Members will join me in condemning those banks and credit card companies that, at the very time when millions of British consumers are struggling, are ratcheting up their interest rates, following the lack of regulation on excessive interest rates on our credit cards.

John Hemming: rose—

Stella Creasy: I hope the hon. Gentleman is on his feet to agree with me that this must be stopped.

John Hemming: I wanted to make reference to my entry in the register, as I have certain banking shares.

Stella Creasy: I hope that the hon. Gentleman will use the fact that he has shares to make representations to his bank about the consumer credit market in the UK.
	The consequence of doing nothing about this industry and doing nothing about how British families are being made to struggle because of the cost of credit are far too great to see. Frankly, it is not good enough for the Chancellor and the Minister to say, “Well, we have to wait until we see the research from BIS.” We have been waiting years—yes, years—for action on this issue since it was first put to Ministers.

David Mowat: I am following the hon. Lady’s argument closely, and many Government Members are equally concerned about these practices, but will she clarify what rate of APR she thinks should be the maximum for a loan of, say, one week?

Stella Creasy: I have answered this question in previous debates. I do not think that we should set a single rate of APR and I do not think we should have an interest rate cap: I believe we should have a total cost cap. In the absence of the Government making progress on such a cap, however, I view the FCA as offering an opportunity to start the more effective regulation of this industry. I hope that the hon. Gentleman would agree that the opportunity to have the industry and consumers setting rates and clarifying what is excessive and what counts as consumer detriment in the listing of these products represents a way forward. That is the argument of Labour Members, and we shall seek to table amendments on that basis. It is no wonder that the number of complaints about these companies and these loans is sky-rocketing in the UK.

Alun Cairns: Will the hon. Lady give way?

Stella Creasy: I am sorry, but I will not, as I do not have much time left and I have already taken some interventions.
	Between October and December last year, there was a 25% increase in the number of people complaining about these companies, and three quarters of those complaints were upheld by the financial services ombudsman. Demand for these products will only get stronger. Two in five people are expecting a pay freeze this year, and one in five expect to lose their job. Inflation rates might slow, but that will only slow the pace of the cost of living, especially in the capital city. Six million people are already considered financially fragile; if one more bill goes up—their mortgage, transport costs or even their food bills—they will be pushed further and further into debt. With banks not lending to these people, it is these legal loan sharks who will pick up the pieces.
	We should reflect on the fact that the one industry growing in this country is these legal loan sharks. Cash Converters proudly say they are going to open another 40 new shops—at 1,413% APR; while Albemarle is opening 300 new shops, charging 853% APR. This is also a serious issue for our economy. If millions of families have thousands of pounds worth of debt that they cannot escape, it is clearly going to impact on consumer confidence. This will be the new economic crisis that will come to Britain in the years to come if we do not deal with this problem, as we have concentrations of communities with thousands of pounds of debt hanging around their necks, limiting the choices they can make for their futures and limiting the kind of lives they can lead. The failure to tackle these issues will
	leave millions of people with unmanageable debt, yet we have an opportunity to make progress through this legislation.
	This problem is not going to go away. It is right to look at the industry and for consumers to be involved in setting the rates and determining what is consumer detriment. Let me tell the Minister that the public clearly want action on legal loan sharks. His own Back Benchers want action on them. I welcome the conversion of Government Members to this cause. I just hope that it is a conversion that will continue all the way through to voting in favour of our amendments. Even the industry wants action. It does not want the current uncertainty.
	My simple question to Ministers, if they will not accept our amendments, will not send out the message and will not finally tackle legal loan sharking is this: how much worse does it have to get for the people affected in our communities? We know that 4 million people in Britain are already borrowing from these companies, and there could be as many as 10 million if we do not deal with these problems within the next year. That will be 10 million people stuck in a cycle of toxic debt that will damage them and their families for years to come.
	I therefore ask the Minister to take on board the suggested amendments and to take account of the desire of Members on both sides of the House for action on legal loan sharking. Let us finally make the third time a charm.

Several hon. Members: rose —

Dawn Primarolo: Order. Before I call the next speaker, we moved rather swiftly on from a recent intervention and I wonder whether, for the sake of clarity and accuracy of the record, the hon. Member for Birmingham, Yardley (John Hemming) might like to make his final point again?

John Hemming: Yes, I wanted to refer the House to my declaration of interests and the fact that I hold certain bank shares, which will obviously be affected by limits on sums that can be claimed per letter.

Matthew Hancock: It is a pleasure to follow the hon. Member for Walthamstow (Stella Creasy). She speaks with passion and determination about consumer credit issues.
	We have heard much about consumer credit and accountability, and, indeed, about culpability for what went wrong. Those are important questions, but I want to concentrate on the substance of the Bill and its impact on financial and economic stability. We did not hear much from the Opposition Front-Bench spokesperson about the question of substance, but I think this Bill is one of the Government’s most important pieces of legislation so far. It is an attempt to draw the right lessons from the economic crisis, and to set out a regulatory structure that will last for years to come. I am therefore very pleased that the debate has taken place almost entirely—almost, I repeat—in a spirit of constructive criticism.
	It is said that the next financial crisis occurs when the last person to witness the previous crash retires. I hope that that will be a long time from now—and I also hope
	that that last person may be sitting here in the Chamber today. It is important that there is a long time frame, because the Bill must be right not only when memory of the recent crash is vivid, but when the boom is booming again and once more people are saying, “This time it’s different.” Our aim must be to embed a culture of responsibility into the big balance-sheet banks, while also encouraging and supporting the broad multitude of smaller, energetic, innovating, enterprising, exporting, wealth-producing, vitality-bringing, tax-paying City firms and companies that are not underwritten by the taxpayer and that make up the vast majority of firms in the City—and that ensure that our financial services industry leads the world.
	Before turning to the substance of the Bill, however, I want to deal with the two questions that have dominated the media debate: accountability and culpability. To those concerned about accountability, I add only the following few comments to the long exchanges that have already taken place. The Bill represents an important step forward. At present, the Governor of the Bank of England reigns imperial on questions of financial stability. Executive action is vested in him and him alone. By creating the Financial Policy Committee, the Bill ensures that the Governor will be the chairman of a powerful committee, but instead of his being imperial, a committee decision will carry the day.
	On the question of culpability, I do not know whether the Opposition admitted that they got things wrong, but it falls to us to learn the lessons from the failures, as well as the successes, of the past. My central argument on this question is as follows. Our financial system is complex, ever-changing and interconnected. We must therefore treat it as a system and understand the human behaviour of the people in it, rather than treat it like a textbook.
	First, instead of segregating the regulation of the banks from the management of the economy as a whole, as the tripartite system tried to do, we must treat them as one part of the whole system. The attempt to turn the Bank of England into a monetary authority and to leave the FSA as a micro-regulator was bound to fail because no one was in charge of the size of bank balance sheets not only in the bust—as we well know—but in the boom, too. Monetary policy works through the banking system. Banks create money and transmit interest rates to the wider economy. As finance and money are deeply intertwined, their regulation must also be intertwined. That is the first lesson to be learned from the crisis, and this Bill addresses that point.
	The second lesson is not about who regulates, it is about how they regulate. The debate about whether there was too much or too little regulation is sterile and defies the facts. Instead, we should be seeking the right regulation. Between 2001 and 2008 the number of pages in the Financial Services Authority rulebook increased from 2,700 to 9,300, yet, as we know from the report into the failure of RBS, not a single FSA rule was broken at RBS. There are some vivid examples of the FSA’s box-ticking mentality. In 2006 the FSA noticed that certain financial institutions were conducting biased stress tests on their balance sheet strength. In 2004 the FSA identified Fred Goodwin’s management style as a risk for RBS, yet nothing was done. No one was held to account. The FSA also failed to regulate balance sheets or check that business models were sustainable. There
	were 9,000 pages of rules, therefore, but there was no view on the sustainability of the business models of banks. In fact, FSA chiefs hardly ever met senior management. The FSA had meetings with Northern Rock’s senior management eight times in the two years before the crash. Two of those interviews were conducted by phone, while five of them took place on the same day. In 2007 when Northern Rock went bust, it was on the at-risk register but the next set of meetings between its senior management and the FSA was scheduled for two years later, in 2009. The pendulum between sticking to the rulebook and allowing the authorities to exercise discretion had swung to the extreme end of using the rulebook and leaving no room for judgment.

Stephen Phillips: My hon. Friend is making a powerful case. Does he agree that a key point is that flexibility is required for effective regulation of the financial services sector, and that one of the problems with the previous regulatory system was that the monolith that was the FSA simply imposed more and more rules without there being the flexibility to be able to tailor the rules to the circumstances?

Matthew Hancock: That is absolutely right, and I should also pay tribute to my hon. and learned Friend’s profession outside this House, because, as in the common law, every successful system of oversight that has stood the test of time allows room for both rules and judgment. The common law is an example of a system that has built up over time and that understands the complexities of human behaviour. It has strict rules in some regards, but it also allows the exercise of judgment in order to be able to adapt to modernity and circumstances. If we move entirely towards rules and away from the exercise of any judgment, we take away that ability to adapt.

Steven Baker: My hon. Friend makes an interesting point in comparing the approach under discussion to the common law. Does he agree that a key difference is that whereas in the common law anybody can look at previous judgments and know how the law will respond to their behaviour today, under this proposal to have flexible forward-looking, judgment-based regulation we cannot necessarily be sure today how the state will treat our current actions at some point in the future?

Matthew Hancock: It would be better if we had an embedded and long-standing system in which there were those precedents, but as we do not have about 800 years to put it in place it is better to have a forward-looking system. If my hon. Friend has a suggestion as to how we can use precedent built up over time, given that we are starting from a system that catastrophically failed, I would be very interested to hear it.

Steven Baker: I hope that my hon. Friend will stay for my speech.

Matthew Hancock: As I said, this pendulum swung too far, but why do we need to allow the authorities to exercise this discretion? It is because the world we face is as we find it, not as it is written in the rulebook. Indeed, the very complexity of the system calls for simple rules, because the more complex the rules applied to a complex
	system, the more likely somebody is to try to game it and, therefore, the more complex the set of rules that will need to be imposed again on the system to try to account for that behaviour. We see the same thing in respect of other areas of Government policy, not least the tax system, where complexity has led to avoidance activity, which has led in turn to complexity, and so we now have the longest tax code in the world. This attitude towards regulation and oversight makes no sense in the modern world of complexity. Complex systems need simple rules.
	Complexity also adds cost to businesses not targeted initially. Worse still, the complexity leads to a moral abdication, because the rules become a substitute for personal responsibility. Just as we need to allow for the exercise of discretion by regulators, we also need, within a system that promotes responsibility, to allow for the discretion of management. That is why I have concluded that we need to ensure, especially in such a high-paying business, that the sanctions for failure and for irresponsibility are strong. It is not a good enough sanction for someone simply to lose their job in an industry where it is easy to move into another one.
	In the first instance, we need to move to a system where the debarring of directors is made easier, not least because when a bank is rescued it technically does not go through the current debarring rules. The FSA is right to regulate pay and introduce claw-back, but we also need, in extremis, to introduce a measure to ensure that for recklessness at the helm of a systemically important bank there is a stronger and, if necessary, criminal sanction. I hope that such a measure would never be used but, as with other areas of life where these measures are hardly ever used, it greatly concentrates the mind to know that a deep sanction exists for reckless and deeply irresponsible negligence. I hope that such a measure would be a check on hubris and would last the test of time so that it would be in existence next time there is a boom and the associated hubris.
	I hope that that change, the changes in this Bill and other changes will allow those of us who support the free market, enterprise and innovation to support, unabashedly and with enthusiasm, the wealth creators, who make our prosperity possible.

Tom Greatrex: I wish to make a relatively brief contribution. I do so without the degree of expertise that has been exhibited by a number of right hon. and hon. Members who have spoken, particularly those who have served on the Joint Committee and on the Treasury Committee. I know that they have examined the detail of this Bill and have taken evidence on it over a period of time. My expertise on and knowledge of financial services has largely come about as a result of issues raised by constituents since my election to this House. That is why I wish to spend a little time discussing part 2 of the Bill, which creates the Financial Conduct Authority, which we have heard referred to as one of the successor bodies to the Financial Services Authority, and part 5, which deals with independent inquiries into investment schemes, among other things.
	I come to those parts of the Bill as a result of what I suspect will become known soon enough as the latest in a long line of mis-selling episodes, to which the
	Chancellor and shadow Chancellor referred. My right hon. Friend reminded the House that there have been a number of these episodes over the course of 30 years and under various different regulatory regimes and set-ups. The issue that I refer to is the collapse of the Arch Cru investment vehicle in 2009 and the interests of the 20,000 individuals who have, almost certainly, been adversely affected by it. As many hon. Members will be aware, Arch Cru was established in 2006 and was sold as a vehicle to provide low-risk, cautiously managed funds that were sold through independent financial advisers and, like all investment funds in the UK, were regulated by the FSA. The authorised corporate director was Capita Financial Managers, part of the Capita group, and the two depositories of the fund were the Bank of New York Mellon and HSBC, whose activities were, again, regulated by the FSA. Many of those who invested in Arch Cru did so on the basis that it was managed cautiously, and the use of those household names gave people comfort that the regulator was overseeing those bodies and that people’s money was indeed being invested cautiously and wisely.
	As many hon. Members will know, the fund was suspended in March 2009. At the time, it was worth £363 million but by March 2011 its value was estimated at £148.8 million, which means that many people have suffered losses as a result. Far from being cautiously managed, funds were invested in cells registered in Guernsey in a cavalier manner. Investments were made in off-plan property, in real estate in Dubai, and in Greek shipping and ferries. It remains highly dubious as to what level of recompense investors are likely to receive.
	The collapse of a supposedly low-risk collective investment scheme such as Arch Cru has caused a high degree of anxiety. Although we accept that no regulatory system can provide absolute protection, the failures of the FSA, in many respects, in this case mean that it is important that the measures being put in place give consumers the right amount of protection. That is why I particularly welcome clauses 64 to 68, which deal with independent inquiries into regulatory failures in respect of collective investment schemes. However, clause 64(5) has the effect of meaning that events occurring before 1 December 2011 will not be subject to the power of inquiry, and Arch Cru’s collapse occurred well before that cut-off date. The Government have the power under section 14 of the Financial Services and Markets Act 2000 to institute an inquiry, and I hope that they will still make use of that power.
	Clause 67 deals with the conclusion of an inquiry, noting that the person holding that inquiry must
	“make a written report to the Treasury”.
	The existing legislation contains a provision stating that the Treasury may publish the whole or any part of a report and, should it decide to do so, the report should be laid before Parliament. However, a similar provision appears to be missing from the Bill, so perhaps the Financial Secretary will enlighten the House as to whether I have missed it or whether we will need to make an amendment in Committee to ensure that that degree of transparency is in place for such inquiries.
	If we are to minimise the chances of another episode such as the Arch Cru collapse happening again, the people who invest their retirement nest eggs on the basis of being told that a fund is cautiously invested need to be adequately protected by the regulatory regime. There
	should be some governance over the terms used to describe investment vehicles, especially where, as in this case, the reality turns out to be very different from the description.

Alun Cairns: I pay tribute to the work that the hon. Gentleman has done on Arch Cru. Does he share my concern that the risk category of any financial product is assessed by the Investment Managers Association and that there is no regulatory framework or matrix by which such an organisation conducts its work on assessing the risk of a product?

Tom Greatrex: I thank the hon. Gentleman for his intervention. I do not wish it to appear as if we are just congratulating each other, but I want to place on the record my appreciation of all the work that he has done on Arch Cru as co-chair of the all-party group on Arch Cru. It is my pleasure to co-chair that group with him and he makes an important and significant point.
	As the Bill goes through Committee, we need to consider that issue in detail as it relates to the set-up of the FCA, to ensure that we are never again in a position in which descriptors with no value are attached to investment opportunities, almost as a marketing exercise, with nothing behind them. I hope that the Financial Secretary hears the hon. Gentleman’s important point, and that we can return to it in more detail.
	One way in which to prevent a repeat of the experience is fully to learn the lessons of the Arch Cru collapse, and to ensure that, as a result, the consumer is protected by a more robust regime. The Financial Secretary will no doubt recall that in a Westminster Hall debate on Arch Cru last October, many Members on both sides of the House asked the Government to instigate a section 14 inquiry. The Financial Secretary replied that he did not think such an inquiry appropriate at that point and he continued:
	“The powers are available where it appears that significant damage has been done to the interests of consumers that might not have occurred but for a serious failure of regulation. It is worth pointing out that the power has never been used.”—[Official Report, 19 October 2011; Vol. 533, c. 285WH.]
	First, I am not quite as convinced as the Financial Secretary is that the fact that the power has never been used means that it should not be used. Secondly, to my mind, Arch Cru is an example of regulatory failure. The FSA failed properly to regulate the fund, and let down my constituents and thousands of others across the country by not stepping in earlier. The FSA was statutorily responsible for regulating Capita Financial Managers, which was the authorised corporate director for Arch Cru, yet Capita failed to see what was going on until it was far too late.
	As the intervention by the hon. Member for Vale of Glamorgan (Alun Cairns) illustrated, there is cross-party consensus on the issue, and the all-party group extends across the whole House, with members from every party other than the Scottish National party—that might be pertinent. When answering questions in December, the Prime Minister was receptive to the idea of considering what more the Government could do to address this important issue. One course of action could, and I would argue should, be to establish a section 14 inquiry, the findings of which could be used to inform a detailed discussion of the proposed FCA, and to ensure that the
	body is established with the resources, expertise and powers necessary to minimise the opportunity of anything like the Arch Cru failure happening again.
	Even at this late stage, I ask Ministers—the Economic Secretary is now on the Front Bench and might be less familiar with the issue than the Financial Secretary, who was there when I started speaking—to reconsider the position on a section 14 inquiry, so that this part of the Bill can be as robust as possible. When the current regulator admits that it did not know what was happening, because of the structure of an investment vehicle and the nature of some of the investments in Guernsey and elsewhere, in my mind it becomes the responsibility of the Government to minimise the risks of the same thing happening again. The Government have an opportunity, as do we, through the Bill, to ensure that the successor body is better placed to ensure such a result.
	It is sometimes easy, when getting into the weeds of an issue such as Arch Cru—as I and others have done over recent months—to forget that ultimately this is about people. It is about my constituents and others who deserve the right consumer protection, and we must be confident that in dealing with the consumer aspects of regulation, the successor body does not fail in the way its predecessor did. To ensure that, we need to know what did not work under that predecessor regime, so that there is confidence in the successor body and people are protected in the right way. That is why it is still relevant and important that the Government consider a section 14 inquiry into Arch Cru under the current legislation, and I hope that Treasury Ministers understand that this point is being made in the best interests of scrutiny, of effective regulation and of the consumers who expect, and deserve, to be protected when purchasing financial services products.

Mark Garnier: It is a great pleasure to speak in this debate, partly because in a previous existence I spent a number of years on two occasions as a compliance officer under three different regulatory regimes, and also because I am the third of the three Treasury Committee musketeers who did not go on the trip to Shanghai and who were left behind to hold the fort.
	What is abundantly clear—I do not need to repeat it—is the utter uselessness of the current regulatory regime and how the FSA operates. That can be illustrated by the exchange of words between my right hon. Friend the Chancellor of the Exchequer and the shadow Chancellor about the operation of the day-to-day running of the tripartite regime. Only last week we heard from Hector Sants, the chief executive officer of the FSA, that while he was a managing director of wholesale and institutional markets at the FSA, he had no discussions whatever about the Royal Bank of Scotland’s investment bank. Lord Turner went on to add that the FSA was singularly incapable of meeting the expectations placed on it given the breadth of its regulatory responsibility. Given that, the need for a new regime is unquestionable. I am certainly satisfied, in the broadest sense, that the Bill makes great progress, not least in response to Lord Turner’s comments. We are dividing up regulation between the financial conduct authority, which will be charged
	with protecting the consumer, the prudential regulation authority, which will look after the nuts and bolts of the system, and the Financial Policy Committee, which has been set up to look at systemic risks.
	As the third member of the Treasury Committee to speak in this debate, I fear I might repeat some points that have been made. If I do so, it will be to reinforce those points. One thing that has not been talked about, however, is the speed and complexity of the Bill. It is complex and has very far-reaching implications for the long-term security of our financial system as well as for the competitiveness of this country. It is worth remembering that financial services employ more than 1 million people in the UK and raise more than £50 billion a year in tax revenue.
	The Bill seeks to amend three previous Acts. The Treasury Committee recommended that the Government start afresh with a new Bill dedicated to addressing all the myriad points discussed since the financial crisis and, indeed, before. The Governor of the Bank of England agrees; he said to a meeting of the Committee last year that
	“our first preference had been to have a clean, new Bill, spelling out the new system rather than just amend FSMA.”
	He continued, and on this point I wholeheartedly agree:
	“We are losing the simplicity and the ability to have a cleaner debate about the…framework.”
	The more complex a system, the easier it is for it to go wrong and the more difficult it is to find out why it went wrong in the first place and to repair it.
	One of the most profound elements of the Bill is the creation of the FPC, and we have heard a lot about that this afternoon. The FPC is charged with making sure that systemic risks do not emerge and that bubbles, such as credit bubbles, are not allowed to develop. That is unprecedented in our financial system and will have far-reaching implications. The interim FPC, as we have heard, has been in place for some time and the Treasury Committee has spoken with its members about how it is moving along, but its final format is yet to be set in stone.
	At the FPC’s disposal will be a range of macro-prudential tools that it can use to control the financial system and markets, and I was pleased to hear the Chancellor say that we would be able to debate the matter on the Floor of the House and decide which tools will be available. The tools will fall into two categories, however. Those in the first category, which will be debated in the House, will be the tools of direction and might include such things as loan-to-value ratios for mortgages, liquidity requirements and capital ratios for banks, which could be directed on to the system via the PRA or the FCA. The measures in the second category, which have not really been talked about this afternoon, will be powers of recommendation and they can be absolutely anything. The actions of the FPC, however, will have the most effect not just on our economy but on our society.
	Let me take one of the simplest cases by way of an example. The FPC, in its wisdom, might decide that a credit-fuelled asset bubble is emerging so it wants to tighten up loan-to-value ratios on mortgages. Instead of a 10% or 15% deposit on a house purchase, it will direct that lenders move to a 30% deposit. That is all very simple and fair enough. However, those who are affected first and most deeply will almost certainly be first-time
	buyers who will suddenly find they do not have the deposits to make a house purchase. People who have only recently bought a property and who therefore probably have relatively low equity might find that they are now not in a position to move house, which will have implications for the mobility of our work force. For a property developer, the tightening of the loan-to-value ratio alone might influence a decision not to develop their land bank. The tightening of that potential supply could lead to exactly the opposite effect on house prices to that which is desired. I hope that illustrates that the implications of such a simple move are widespread and can, indeed, be unpredictable.
	As we have heard, the FPC will have a financial stability objective, which will develop from recommendations by the Treasury. The FPC will need to monitor indicators of financial stability, but we do not yet know what those will be. Nor do we know at what levels they will start triggering intervention. The interim FPC has given us a guide, but it gives little indication as to what will actually happen. Were it to publish its dashboard of limits in relation to where it does intervene, the markets would, to a certain extent, be self-correcting. However, there will be occasions on which it will not want to publish because it wants to be discreet or even secretive about its interventions. Under those circumstances, the Treasury Committee will find it difficult to scrutinise such secret interventions.
	That brings me to my next point, which is incredibly important, on the governance of the Bank of England. Let me address the good news first: the Treasury Committee very much welcomes the move to a single eight-year term for the Governor of the Bank of England, as opposed to two five-year terms. However, that raises the possibility of a Governor crossing Governments of two flavours, and we on the Treasury Committee think it would make sense if Parliament, through the Treasury Committee, had a power of veto over the Governor’s appointment. The Chancellor took the unprecedented and extremely welcome move, after the election, of giving the Treasury Committee a power of veto over the appointment of the chairman of the Office for Budget Responsibility. Now we have seen how well that works in practice, we think the Governor’s appointment is another occasion for which such a power of veto would be appropriate.
	More widely, the Treasury Committee is concerned about the governance of the Bank of England. I welcome the Chancellor’s comment about the new oversight committee, but currently the court is responsible for essentially administrative matters—pay and rations. We want the Bank to have a proper board with a new name that reflects its updated role. We recommend that the board should have a majority of external members, as we have heard from my hon. Friend the Member for Bury St Edmunds (Mr Ruffley), who must have more relevant skills and experience. The Treasury Committee wants the board to be able to conduct retrospective internal reviews of the Bank’s policy decisions. In its response to these calls, the Bank envisages limiting that power to commissioning external reviews or conducting internal reviews only of the decision-making processes of the Bank.
	The creation of the FPC makes this governance issue particularly important. As we know, the MPC uses just two tools—quantitative easing and interest rates—and
	the minutes of its meetings are published so we know exactly what is going on, which is a very good thing. The FPC, however, has many measures at its disposal, both directive and recommendational—potentially an infinite range. By their nature, those measures might on occasion be implemented in a secret way, which means that the FPC might not be able to give a full and open account to the Treasury Committee or to publish entirely transparent minutes. Moreover, it might be years or even decades before we know that an intervention has taken place or even that an intervention has become necessary. That is why the governing body of the Bank needs to be able to look at the merits of the FPC’s policies and not just at the methods. The Bank’s board must not be restricted to finding out whether the wrong decision was made, but in the right way.
	Crisis management is a crucial area about which much has been said this afternoon. I certainly welcome the creation of a new power of direction for the Chancellor over the Bank in a crisis, which was recommended by the Treasury Committee. The Bill requires that the Governor must formally notify the Chancellor in the event of public funds being at a material risk. The Chancellor cannot direct the Bank unless there is a threat to financial stability as well as a threat to public funds, and the scope of the power of direction is narrowly defined. The arrangements for crisis management are something that could be discussed in Committee, but clarity is vital. For me, the answer to this simple question is crucial. If I see an unhappy bunch of customers outside a bank in Kidderminster high street, who should I telephone? I think the Bill answers that question.
	I have voiced a number of concerns from the Treasury Committee and they include my personal feelings. However, I welcome the aims and thrusts of the Bill and the fact that the Government have moved some way towards the Treasury Committee’s recommendations. Let me finish on this point: the financial services industry is incredibly important to this country in terms both of employment and of economic and fiscal contribution. It represents around 11% of gross domestic product, but it is already under widespread attack, including from the press and politicians. Over the next few months there will be a change to the regulatory regime, which we are debating today, followed by a change in the banking regulations, all mixed in with a plethora of new rules from Europe. It is vital that we sort out the current regulatory framework to ensure that we can spot and resolve the crises of the future, but it is just as important that we provide a stable regulatory platform to allow all the firms and individuals involved in this industry to continue to be profitable, to plan for the future with confidence and to be sure of regulatory stability.

Several hon. Members: rose —

Lindsay Hoyle: Order. Twelve Members seek to catch my eye so I am going to drop the speech limit to eight minutes to ensure that every Member gets in. If hon. Members do not take too many interventions, I hope we will make sure that happens.

Chris Evans: This Bill will amend a series of pieces of legislation. When we talk about reforming financial services, we have to think about
	innovation and how fast society and markets move on. When I think about the reform of financial services, I always think we should tread with caution. This Bill is very important in that it has to reform a system that has clearly failed. I worked in the financial services industry myself, many years ago, and when I want to judge a Bill such as this one, I think of three tests on financial education, financial inclusion and disclosure.
	On the first test, it is highly important that we bring about not only statutory financial education in schools but a duty on banks to provide some sort of financial education. I use an example from my own life. Many years ago, when I first had my student grant, in the days when we had student grants, long before student loans, I remember jumping off the train with a cheque for £500 in my hands, almost shaking with nerves about what to do with it. I went straight into the first bank I saw, the name of which I shall not mention—I do not want to embarrass it, as I have not been a great customer. The bank opened a student account for me, gave me a £50 voucher to spend in Burton, with which I bought a pair of jeans, and gave me a magic bank card, which meant I could go anywhere I wanted and buy anything. I could go to the bar or a clothes shop and have all these wonderful goods. By about December of that year, I had a letter through the post saying, “Mr Evans, we’d like to talk to you about your unauthorised overdraft charges”.
	When I worked, the same things seemed to be going on. There were people even in their 40s and 50s who did not understand that when they wrote a cheque it would come out of their bank account. They would ask me, “Mr Evans, how am I spending this money when I’m using my card?” I think that banks ought to have some fiduciary care for their customers and ensure that people understand what they are taking out. Things should be simple and understandable.
	I want to make a second point about financial education. When people talk about financial education they mention consumers and people at the bottom end of the scale who get services from the bank, but when I was working in banks I often found that people who called themselves bankers did not understand the banking system. They did not understand what a clearing house was, what a CHAPS, or clearing house automated payment system, payment was or what a BACS, or a banker’s automated clearing services, payment was. I was very nervous about the fact that those people were serving people and selling them products but did not seem to understand how the banking system worked. When I spoke to management about that, they said, “Years ago, we had banking exams and this was a profession, but they have fallen by the wayside now as we have moved towards a sales model.” I have some sympathy with the banks, because they are not benevolent institutions—they have to make profits and sell their products—but consumers need to have confidence that the person selling to them understands what they are talking about.
	That leads me to another point about consumer protection. Consumers need to understand the products they are being sold. I can think of many occasions on which people were sold products that they did not understand. For example, banks’ financial advisers said
	to people about bonds, “Oh, it’s okay—a bond is just a savings account, but you do not have a bank card to draw out on it and you have to keep it there for five years.” When people found out that bonds were being invested in risky ventures such as the dotcom boom, which eventually went pop, the banks had a number of complaints about that. It is very important that people understand what they are being sold and that everything is clear.
	I also think there should be some framework for the sellers. I remember when the financial planning certificate came about. The very first paper asked, “If somebody came into the bank and wanted to protect their family if they died, what would you sell them—A: life insurance, B: general insurance, or C: send them home?” That is quite simple and there is no knowledge in knowing that they must be sold life insurance. It is important that we have some sort of framework.
	The most important part of the Bill, which does not go far enough, concerns disclosure. In America there is the Dodd-Frank Act, which says that every financial transaction made in the US has to be documented through an office of financial research. I would like to see that added to the Bill at some point. It comes to this: the financial crisis happened as a result of myriad problems—we cannot pinpoint one—but one weakness in the system was that we did not know about financial transactions.
	I will give two examples. First, Barclays wanted to buy Lehman Brothers. The board said yes, but the regulator, which had so much on its plate, said no. Then Lehman Brothers went bust and was no more. Four years later, the bank and the regulator still do not have access to that information. Secondly, RBS, which has been mentioned a lot today, said to the regulator and to its board in March 2007, “We do not have any toxic debt or bad-book mortgages.” Yet it was later found to have £1.7 billion of bad-book lending. It, too, went bust. It is therefore important that we have some sort of financial audit, which would have an advantage for the consumer, as we would know how many bad basic bank accounts we have and who the banks are lending to. It would also help with community lending.
	I will digress a little, if you will allow me, Mr Deputy Speaker. I have a personal bugbear with the basic bank account. It was brought about for financial inclusion, and it is important that everyone has access to financial products, but my experience of the basic bank account when I worked in the bank was that often the people with that account were on benefits or moving jobs. When it came to lending, they found that they did not credit score and often sellers were not interested, because those people did not credit score for credit cards, bank loans or any other financial products. They were then simply left to their own devices and often fell into the hands of payday lenders and legal loan sharks, as my hon. Friend the Member for Walthamstow (Stella Creasy) has mentioned.
	I believe that through the FCA we have a chance to bring about financial inclusion audits and to map where each financial transaction takes place. It would be very dangerous to say that a financial crisis will never happen again, but I hope that we can put things in place to ensure that, if it does happen again, it might not be as bad as it was this time. The US has the tool, so why can we not have it?

Mark Field: To be frank, I still regard too much of this legislation as deficient, and I shall touch on some specific concerns, but it would be remiss not to give the Treasury significant credit for some of the work it has done. The extensive and broadly constructive pre-legislative consultation by the Joint Committee is a positive step. The outstanding and ongoing contribution of the Treasury Committee will help to focus the Government’s mind on some of the key institutional pitfalls. There is also an increasing recognition by the Treasury that this is an area of public policy where political judgments will need to be made, and that ultimately the buck must stop with it, not with the Bank of England, however good a Governor we may have.
	My general dissatisfaction relates first and foremost to the inevitable guillotine in this House, which means that the high-level sophisticated scrutiny will have to come from the other place, and I fear that that shows our House in a poor light. It is not that we lack collective experience in this crucial field, but the wish of Governments, throughout my 11 years in the House, to get legislation through by whipped votes means that we continue to fail to hold the Executive to account, particularly on such important pieces of legislation.
	This is probably the only area where I have some sympathy with the shadow Chancellor. The genesis of the Bill was perhaps a rather simplistic political analysis surrounding the financial collapse of 2007-08. It was not really the tripartite system of regulation that was at the heart of those concerns, but an old-fashioned debt and credit bubble and the global imbalance between the east and the west. It is important that we recognise that, because the result was not simply the failing of banks, bankers and Labour politicians; the simplistic analysis also fails to answer the core question that has dogged regulators ever since the financial crisis began: “When the crash came, who was in charge?” The risk is that we will replace an unsatisfactory tripartite system with a potentially even more complex four-way system. I think that there is a risk that that will come to pass, although I do not buy into the shadow Chancellor’s entire analysis. In truth, the new FCA will have too few people of the requisite expertise and sound judgment. Unsurprisingly, it remains very unloved and unrespected by too many professionals in the City, and I am afraid that that matters, given the important role that it will have.
	Let me touch on some of the more substantial political issues that the press have not focused very much on. There is an overall concern about how prescriptive the new regime will be, and to what extent the Bill will recalibrate things in a way that will have unintended and potentially damaging consequences for the industry, the UK and the consumer. I will give a few examples. On the warning notice publicity, the Bill will change the current position whereby enforcement action becomes public only at the end of the process, after the firm has decided whether to go to tribunal, and before that stage has had two opportunities to make representations. The new approach means that there will be negative publicity at the stage of the warning notice—the first notice—and the firm will have no right to make representations before that. The reality is that, essentially, the Daily Mail test means that all the damage to the firm’s reputation will be done before any due process has been gone
	through. The argument in favour of the change is that this is similar to a criminal case, but that misses the important difference between the cases, and represents a worrying trend in the thinking, to the effect that everyone in the industry is somehow a would-be criminal.

Mark Garnier: Will my hon. Friend give way?

Mark Field: I am afraid that I will not.
	Product regulation and financial promotion powers are another issue. There are powers to intervene earlier in the product life cycle and ban financial promotions. There is an argument that the FSA already has the power to do this. The big political point is the balance between market and regulatory failure. All the debate has been about how the powers are needed to prevent market failure and how the regulator will be far more involved in product design and in the business. It is difficult to argue with the concept, but the position that there is no moral hazard in going down this route is arguably naïve, and fails to recognise that the regulators never have perfect vision.
	The cost of regulation is in many ways the dog that has not barked. There is nothing in the Bill to apply more financial discipline to either the PRA or the FCA, so the cost-benefit analysis does not apply to the rules that they have in place. We must also ask how the new regulators will work together. The Bill sets out certain principles for the memorandum of understanding between the PRA and the FCA, which is perhaps all that can be expected. However, that leaves on trust a lot of the detail of how the new organisations will work together. That is a key practical issue for firms if this is not to lead to new and inconsistent regulation.
	One good example relates to threshold conditions. The Bill provides the PRA and the FCA with the power to make threshold condition codes, which will elaborate on the conditions and how they will apply to different classes of firm. Those codes will be binding. What will happen if the two regulators take inconsistent approaches on, for example, explaining what they mean by the suitability condition? The last thing anyone wants is the development of an industry engaged in arbitrage between the two inconsistent approaches to regulation for different parts of the industry. That is a particular worry for dual- regulated firms, and firms left under the FCA, such as fund managers, are concerned that they could suffer from more heavy-handed regulation, rather than the more senatorial style that it is assumed the PRA will adopt.
	Will there be enough of the secondary framework to be able to consider the new structure properly? That is a general question, and one example is whether investment firms are within the PRA’s scope. Firms do not yet know, and things keep changing. For example, the Government agree that the risks posed by investment firms and the concerns arising from last autumn’s MF Global failure should continue to be subject to scrutiny by the authorities, which might change the boundary. The point about MF Global is that it did not take proprietary positions, and so would have fallen on the FCA side. The argument is that the organisation has caused great systemic problems, and so surely should have been regulated by the PRA.
	That question has now been partly—but only partly— addressed, through the draft designation order published on the Treasury’s website, setting out the criteria that
	the PRA will apply when considering whether it should designate individual firms as “dealing in investments as principal” for PRA regulation. Has enough thought been given to that issue, however? There is a parallel debate about large hedge fund managers, who deal only as agents, and therefore stay on the FCA side, yet arguably pose a systemic risk themselves. It is hard to look at the new framework in the round until all such details are sorted out.
	I shall conclude soon, because I appreciate that other Members have more to say. Indeed, there is so much more that I could say myself. One issue that has been widely discussed is the competition objective, which was especially well dealt with in the Joint Committee’s report. The point often missed is that the whole discussion is about competition within the market, and whether that itself should be an objective or principle to which the FCA ought to be compelled to have regard. It is not about the more fundamental issue of the competitiveness of the UK as a financial services centre, important though that is. That says something about the new approach to the industry.
	I fear that we risk throwing the out baby with the bathwater. Why should the UK not have regard to the competitiveness of one of its most important industries, subject to the other important goals of market stability and consumer protection? Rebalancing the economy is all well and good, but it should not mean undermining the vital importance of the City and of financial services to the UK as a whole.

William Bain: This Bill makes certain changes to the supervision of the banking and wider financial services sector, and Opposition Members can give guarded support to them, but it falls far short of taking the much-needed action to regulate payday lenders and the total cost of credit, to secure growth and jobs as goals of the new regulatory bodies, and to make the necessary reforms in the banking sector’s excessive pay and remuneration, which was one of the key factors driving the financial crisis in the first place.
	A growing body of research, from the OECD to White House economists, shows that societies with a smaller gap between the richest and the poorest achieve higher long-term growth. This Bill could have taken real steps to tackle inequality and the culture of high bonuses and pay in the financial services sector by implementing in full the recommendations of the High Pay Commission to put an employee representative on the remuneration committee of firms in the banking sector, to require the publication of the pay ratios between highly paid financial services staff and those on average wages, to ensure that all publicly listed companies in the sector produce fair pay reports, and to establish a permanent body to monitor high pay.
	The High Pay Commission recently discovered that in Barclays, between 2009 and last year its top executives’ pay was 75 times that of its staff on average pay, and the ratio in Lloyds Banking Group was precisely the same. Since 1979 the pay of the top Barclays executive has gone up by 4,899%, to £4.365 million last year.
	There appears to be a growing mood on the political right, particularly in the United States, to take the view that those issues do not matter, but in Britain they do, and the Government could have done far more in the Bill to show that they stand with the 99%, rather than with the top 1%.
	The Bill could also have secured more justice for the young and poor in our society by introducing a tax on bank bonuses for the next two years—the first step in tackling the youth unemployment crisis, the scale of which the excellent report by the Association of Chief Executives of Voluntary Organisations exposed this morning. Youth unemployment costs the economy £10.7 billion, and the loss in tax revenues amounts to £2.2 billion per year. How disappointing that the Bill has not taken the first step to end that injustice today.
	The Bill also wastes a golden opportunity to introduce controls on payday lenders and to impose caps on the total costs of credit. Shelter published research last month which found that almost 1 million people have taken out a payday loan to help pay their rent or mortgage in the past year, and that almost 7 million people rely on credit to meet their housing costs. The Bill could have limited the number of loans that a borrower might take out at any one time or on a repeat basis, as Consumer Focus recommended two years ago. Campbell Robb, the chief executive of Shelter, said on 4 January:
	“Turning to short-term payday loans to help pay for the cost of housing is totally unsustainable. It can quickly lead to debts snowballing out of control and can lead to eviction or repossession and ultimately homelessness.”
	On the structural changes to the supervisory framework for financial services, the Bill provides greater clarity through clause 57, so, in the event of a major crisis affecting the financial system, the Chancellor of the Exchequer will have the power to issue to the Bank of England directions on support for the financial system, including the use of Government funds. That is important in emphasising political accountability to this House.
	The Bill is important to the people of Scotland. The financial services sector amounts to 7% of Scottish GDP, employs 150,000 people in Scotland and contributes £7 billion to the Scottish economy. Scotland has the headquarters of RBS, Clydesdale bank and Tesco bank, and it remains a key location for Lloyds Banking Group and other financial institutions. The future regulation of the sector is therefore critical in the momentous decision that the people of Scotland will soon make on their constitutional future.
	The benefits of Scotland’s full participation in the UK financial system were keenly felt in 2008. The report of the Independent Commission on Banking made it clear that the total financial support, including loans and guarantees, provided to the banking sector throughout the United Kingdom during the crisis was of the order of £1.2 trillion. Two of the major beneficiaries of that support were banks based in Edinburgh.
	There is a noticeable lack of clarity in the Scottish Government’s views on the Bill. It is unclear what their proposals for separation would mean for the protection of savings deposits in Scotland. There is a complete absence of detail on who the prudential regulator of banks based in Scotland would be if Scotland voted for separation and on the ability of the banking sector to sustain the levels of lending to Scottish businesses. The
	Scottish National party has said that it would still wish to receive the benefits of the Bank of England’s support for a separate Scottish financial system, but it has not been forthcoming on whether it would accept a continuing remit for the new Financial Policy Committee in the regulation of the banking sector.
	Cross-border financial regulation is good for Scotland and for the UK as a whole. Our system would be weaker on all sides if RBS was split and regulated under one set of rules and institutions in Scotland and under another set of institutions here, along with the other major banks in the UK. Under its preferred post-separation model of establishing a currency union with the United Kingdom, with the Bank of England as lender of last resort, the SNP has not come clean on whether there would be a Scottish central bank, what its functions would be, what its relations with the Bank of England would be, or how banks in Scotland would be regulated in future. Would the SNP seek to regulate the banks and the financial services sector within Scotland, or would it leave that with the Bank of England? If it does plan to have a separate regulatory structure, what form would it take? There is a plethora of unanswered questions, and it is time that the people of Scotland had the answers from the Scottish Government.
	The Bill has some satisfactory elements, but overall it does not meet the scale of the challenge of establishing a more socially responsible financial services sector. If it is to command support in the country, the Government will have to be open to amendments in Committee to restore confidence to the banks and credibility to the regulatory structure across the United Kingdom.

Stephen Barclay: It is a pleasure to follow the hon. Member for Glasgow North East (Mr Bain). I pay tribute to my hon. Friend the Financial Secretary to the Treasury for what is a very good Bill. It displays the diligence and expertise that he brings to his ministerial duties.
	I am sure that the Financial Secretary would be quick to recognise—and here I have some sympathy with the line pursued by the right hon. Member for Morley and Outwood (Ed Balls)—that no regulatory structure is a panacea for regulatory risk. We saw that with the Bank of Credit and Commerce International and the Bank of England. The Bill does not address the core lesson from the recent regulatory failure, which is the failure of capital and liquidity rules. In essence, what we are debating is the supervisory arm of an EU regulatory policy agenda. Fortunately, my hon. Friend the Member for Stone (Mr Cash) is not in his place or he would be intervening at this point.
	For all the strengths of the Bill, I will touch on three areas where I fear the expectations of our constituents may be raised, but where the regulator may not have the power to meet them. The first is the extent to which the financial conduct authority will have an interventionist approach and its objective of promoting competition. The second is its ability to achieve speedy resolution, which was addressed briefly by my hon. Friend the Member for Cities of London and Westminster (Mark Field). The third is whether it will achieve effective enforcement against individuals and whether there should be strict liability. Indeed, my hon. Friend the Member for West Suffolk (Matthew Hancock) touched on whether
	there should be criminal sanctions, a point that was floated in Lord Turner’s RBS report but not answered. If time allows, I also wish to put forward a proposal on which there may cross-party consensus about how fines imposed when there is a regulatory breach are redressed and what is done with the funds.
	I would be grateful if my hon. Friend the Financial Secretary addressed the risk-tolerance of the new consumer regulator. There has often been a misconception that regulators are about ensuring zero failure, and I would welcome some sense of the point at which the new regulator will be judged as having failed to intervene, and what size and scale of failure in the regime is tolerable.
	On the competition objective, some Members have referred to the lack of a power for matters to be referred directly to the Competition Commission. They have to be referred via the Office of Fair Trading. There is potential for two regulators to have different interpretations, and therefore for duplication of costs and confusion about where the power of one regulator ends and that of another starts.
	My hon. Friend the Member for Cities of London and Westminster touched on the need for speedy resolution. To take the example of payment protection insurance, a firm can appeal to the regulator and seek a 90-day review, and then it can have the decision judicially reviewed, which can stretch things out for about a further 18 months. A firm can stretch out proceedings in a mis-selling case for tactical reasons, so that it can use the funds in question in the short term. The thoughts of my hon. Friend the Financial Secretary on that would be welcome.
	The key issue, which always arises in my constituency, is the sense of grievance that there has not been enforcement action against individuals. That was at the heart of the Treasury Committee’s reason for requiring a report from Lord Turner, but nothing in the Bill really addresses the issue. It does not say whether there will be strict liability, and there are no proposals to frame criminal sanctions. For what it is worth, I believe they would be very difficult to frame.
	Within banks, the real problem is that senior executives protect themselves through complex management structures, such as by devolving control functions lower down the organisation so that there is a buffer between them and the decision making and they are knowingly blind. Risk functions often report into finance directors, meaning that there is a potential conflict of interest, and compliance officers often get to shape meetings with supervisors, notwithstanding the more intensive regime that the regulator is currently following.
	A key issue that we need to address either in this Bill or in future legislation is how individuals at the top of banks are held accountable when there are mistakes. My hon. Friend the Financial Secretary might need to have discussions with the Lord Chancellor about that, because judicial review and the risk appetite of the tribunal need to be addressed. Given their judicial nature, those points fall within the Lord Chancellor’s responsibility. They go to the heart of whether people get a sense of justice being done when there are serious failures.
	I move on to a matter on which I would welcome comments from both Front Benchers in the winding-up speeches, and on which there could be scope for positive reform. That is what happens when a firm pays a regulatory fine. It may surprise Members that currently,
	under paragraph 16 of schedule 1 to the Financial Services and Markets Act 2000, when there is a fine for a regulatory breach the money does not go to good causes, or even to the Treasury—my hon. Friend the Financial Secretary might think that the Treasury is a good cause in itself. It goes towards reducing the levy paid by other financial firms. When a bank breaks the rules, it reduces the levy for other banks. Over the past two years, such money has amounted to £166 million. I know that a number of Members are keen on financial education—the all-party group on the subject is the biggest in the House. Perhaps such a fund could be hypothecated for use in a more constructive way, and I would welcome comments on that in the winding-up speeches. I recognise that firms are contributing more to financial education now, but it is odd that they benefit from the regulatory breaches of other firms.
	I shall conclude, because I am aware of the time limit and want to allow time for others to contribute. The Bill is a good one, but as I said at the beginning of my speech, there will be failure. When there is, an independent report is the most reasonable of expectations. It is instructive that Lord Turner is not a neutral player. Will the Minister clarify how much his report cost to compile? I would like scope in the Bill for an independent report in future if we are in the unfortunate position of having a further regulatory failure. That the Treasury Committee had to seek private experts so that it could comment on Lord Turner’s report speaks volumes. That small matter could be tightened up in Committee.
	Overall, this is an excellent set of measures, and I will have great pleasure in supporting my right hon. Friend the Chancellor in the Lobby this evening.

Mark Durkan: Like the hon. Member for North East Cambridgeshire (Stephen Barclay), I shall address areas in which we need to proof and improve the Bill before it goes to another place.
	I first want to express support for the hon. Member for Walthamstow (Stella Creasy) in respect of consumer credit protection. Not only lenders of consumer credit should be under the FCA, but debt collectors, brokers, retail services that sell insurance products and those offering debt management services.
	Similarly, I support the hon. Member for Rutherglen and Hamilton West (Tom Greatrex). Contrary to suggestions made earlier in the debate that the Bill is about putting Parliament back in charge, it is notable that inquiries and investigations under part 5 go to the Treasury. There is no reference whatever to Parliament in that measure, unlike in section 14 of the Financial Services and Markets Act 2000, which clearly states that any such report will be laid before Parliament.
	The Financial Secretary no doubt anticipated that I would mention credit unions in Northern Ireland, because their regulatory status will change in the wider context of the changes heralded by the Bill. He was good enough to receive a pick-up band of Northern Ireland MPs last week to discuss our outstanding concerns on the detail. I can assure him that we are pursuing those. We have not yet eliminated him from our inquiries, but we are making the necessary representations to the FSA and will make them to its successor, the FCA.
	I wanted to talk not just about the implications of the Bill in terms of the lessons of the banking collapse, but about other provisions. The launch of auto-enrolment means that millions more people will save for a pension through the capital markets, including many low-paid workers. In recent months, we have seen that pension savers’ interests are not always put first by the industry. The spotlight has been turned on to excessive and untransparent charges, and conflicts of interests.
	The fund management industry’s duties to savers are poorly understood and observed. The Law Commission has confirmed that when firms manage other people’s money or give financial advice, they have strict fiduciary duties to act in their clients’ interests—both individuals and institutions, such as pensions, that represent large numbers of underlying savers. That fact is, of course, not generally accepted or reflected within the industry. In addition, as we have heard, because those are common law duties, they do not form part of the FSA’s regulatory approach. An explicit reference to fiduciary duty in the Bill would give the FSA a powerful tool to ensure that consumers’ interests are protected.
	Examples of where consumers have suffered from those duties not being observed include unauthorised profits, and recent research shows that some fund managers made significant profits from lending out clients’ shares with only two thirds of the income from those activities returned to the fund. Of course, under fiduciary duties, any such profit should go back to the underlying investor. Another example is in relation to the exercise of shareholder rights. Asset managers, acting on behalf of pension savers, should exercise their voting rights at major companies in the best interests of the savers, without regard to the interests of the firm, but we have anecdotal evidence of fund managers being told by superiors to wave through excessive executive pay to avoid upsetting potential clients. So the interests of the business are placed ahead of the savers whose money is at stake.

David Mowat: I agree with the hon. Gentleman’s point about the market failure that we have seen in the pension and fund industry in the last decade or so, which is close to being a scandal. He is right that the Bill does not include a fiduciary duty, but it would give the FCA a competition requirement that, if applied properly, would stop the market failure and the non-transparent charges that are the core of the issue.

Mark Durkan: The hon. Gentleman has more confidence in the extensive effect that he expects from the competition requirement. I believe that that should be complemented by this other insertion in the Bill.
	During pre-legislative scrutiny—about which we heard earlier—the Joint Committee heard that the Bill was unbalanced. On the one hand, it enshrines the principle that consumers are responsible for their decisions, but on the other it does not place any equivalent responsibility on firms. The Joint Committee recommended that the Bill should
	“place a clear responsibility on firms to act honestly, fairly and professionally in the best interests of their customers.”
	Meanwhile, the Financial Services Consumer Panel recommended that this should take the form of an explicit fiduciary duty to clients.
	In response, the Government have inserted a new principle to which the FCA must have regard, which is that
	“those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate”,
	having regard to the risks involved and consumer capabilities. But that new wording does not provide a high enough level of protection for customers. It clearly lacks clarity on what might constitute an appropriate level of care and stops short of confirming that those managing other people’s money owe fiduciary duties. We need an explicit clarification in the Bill.
	Another area in which the Bill is remiss is the whole principle of stewardship. In the aftermath of the financial crisis, it was widely recognised that major institutional investors had behaved as absentee landlords, not doing enough to challenge risky behaviour at the banks that they owned. This had direct consequences for many of the pension savers whose money those shareholders invested. According to the OECD, in the year after the crisis pension funds lost an estimated 17% of their value.
	After the crisis, we had the Walker review, and the Financial Reporting Council established the UK stewardship code, designed to encourage investors to behave as active owners of the companies in which they invest. This agenda is increasingly recognised by both the Government and the Opposition in all the recent, highly publicised arguments about executive pay and what can be done to curb it. Both leading parties in this House have placed great emphasis on more shareholder responsibility. But to date the FSA has treated this as a fairly marginal issue, appearing not to regard it as a consumer issue. It is not clear that it will be regarded any differently by the FCA.
	There is no mention of stewardship in the Bill, although it is clearly relevant to the objectives of the PRA and the FCA. In particular, there is a danger that stewardship will continue to fall through the cracks in the new regulatory architecture. The PRA is likely to take little interest, because the ordinary asset managers of the firms in question are FCA-regulated, yet there is little reason to assume that the FCA will accord the issue any higher priority than the FSA does at present.
	The proposed duty of co-ordination mentioned earlier by the hon. Member for Cities of London and Westminster (Mark Field) will do little to resolve that issue, because it will focus purely on reducing the burden of regulation on dual-regulated firms, rather than on preventing gaps in regulation between the new authorities. That measure will deal with an overlap as it affects the business; it will not deal with the gaps affecting consumers. Again, there is a hole in the legislation as far as consumer protection is concerned.

Several hon. Members: rose —

Lindsay Hoyle: There are still seven people who wish to catch my eye, and we are struggling with interventions. Time is ticking away, so I will have to drop the limit to seven minutes. Hopefully, I will not have to drop it again.

Alun Cairns: I will endeavour to say as much of what I planned to say as I can in the existing time frame.
	There is no doubt that the Bill should be welcomed and that it will help right the wrongs of the former tripartite structure that contributed to the banking collapse. The tone of this debate is important. It would be easy to labour the failures of the previous Administration and highlight why Opposition Members, particularly those on the Front Bench, must accept their part in the financial crisis of 2007 onwards and the subsequent fallout. It is all too easy to use the banks as whipping boys, but in reality it was politicians and Governments who allowed many questionable practices to go on.
	I regret the tone of some recent news stories about bankers, whether they relate to bonuses or to other controversial issues. We must consider how such matters destabilise an extremely valuable sector that employs more than 1 million people across the United Kingdom, amounts to 10% of our GDP and contributes between £35 billion and £63 billion to the Treasury every year.
	I do not seek to defend the indefensible, but let us at least consider the longer-term consequences of what is said and done, and the tone in which it is said. In considering last week’s debate on bonuses, for example, I hope that Stephen Hester does not choose to leave RBS any time soon, as it could cost a significantly greater sum to attract someone to fill the post, particularly in this difficult public climate. A mature debate is needed on remuneration, which many in this debate have mentioned, but we should be level-headed and remember that how we conduct the debate, as well as its outcome, will affect our economy and growth prospects.
	To the Minister’s credit, a huge amount of work has been done on the Bill. Not only have there been several opportunities to pursue the matter here in the Chamber, the pre-legislative scrutiny Committee chaired by my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) developed the Bill further, as did the Vickers report and the scrutiny of the Treasury Committee.
	My first substantive point relates to structure and culture. The tripartite structure had to end; we are all aware of its deficiencies. The twin peaks approach and the establishment of the FPC, the PRA and the FCA also make sense, but it is important to recognise the need for the legislation to be forward-looking rather than focused on the mistakes of the past.
	It was interesting to read evidence from a number of witnesses who supported the proposals but still refused to commit to saying that if the new structure had been in place in 2007-08 or before, the banking collapse would not have happened. It is important that we seek to develop a regulatory framework that can adapt. A simple tick-box approach—we have heard much about that—or an isolated approach set up to prevent the recurrence of the last crisis will do nothing for a dynamic industry always seeking to evolve, to be innovative and to generate income for the country and its shareholders.
	The Minister is taking the right decision to set up those bodies, but much will depend on the leadership that their members will offer. Several times in the past the House has been involved in the establishment of new agencies only to have to return to their shortcomings within a year or two.
	The culture that each chairman or chief executive develops with the Governor will be crucial to the success of this legislation. The relationship between each organisation is also important and, as ever, will inevitably
	depend on the Governor, chairmen and chief executives. Such relationships need to be open, and there needs to be a clear understanding of the part that each person plays. They should not operate in isolation, and there needs to be clear accountability, with the ultimate test of knowing who should get fired.
	I want to highlight the issue of concentration risk or groupthink, given the huge emphasis that is placed on the Governor. In that respect, amendments suggested by the Joint Committee to strengthen ties with the Treasury and Parliament are welcome. I am grateful that the Minister has accepted some of them.
	It is clear that, within the proposed structures, the judgments of individuals will ultimately make the difference. The Bill provides the FPC with considerable powers of direction, but the levers generally used by the PRA or FCA will also determine the fate and future of the industry. That is the area of greatest concern across all three bodies, yet there is no alternative if we are opposed to the inflexible tick-box approach criticised tonight. Regular parliamentary scrutiny will be essential, and the role of Treasury officials on many of these bodies will be crucial for feedback to the Treasury and parliamentary scrutiny.
	In making their judgments, the PRA and the FPC will need to respond to the evidence. A one-size-fits-all approach will not serve the economy or the financial services sector well. Their engagement with the organisations that they regulate will need to be risk-based, but that flexibility, which is needed, must not lead to inconsistent actions. Sir Mervyn King stated that judgments are undermined when we end up with a game in which regulators are continuously rewriting the rules as firms devise new products to get around the detailed legal rules in place before. A tiered approach is needed, therefore, to allow certainty and due process that also reflects the risk and culture of the organisation.
	The FPC and regulators do not operate in isolation, and international factors need to be considered. It is fair to be concerned, therefore, that UK authorities could seek to raise the bar, and the risk of super-equivalence is real and always worries the leaders of many of these organisation.
	Mr Deputy Speaker, I am sorry that time does not allow me to complete my remarks about the FPC.

Sheila Gilmore: The hon. Member for Vale of Glamorgan (Alun Cairns) referred to what he thought was the regrettable negative public opinion towards bankers, but we have to accept that over a considerable period the banking industry has changed so dramatically that perhaps it needs greater regulation.
	My mother-in-law remembered that when as a student she went overdrawn, the bank would write to her father, and that when she got home for her summer holidays, she would be in big trouble. In contrast, my children were automatically given a £1,000 overdraft as soon as they presented their new student cards at the bank. Before I could say, “Hang on a minute, perhaps that isn’t terribly wise,” they found themselves unable to refuse this largesse. That demonstrates the change that has taken place over a couple of generations. To that
	extent, the banking industry has to look to itself, not just to external regulation, and ask where things have gone wrong.
	At the beginning of this debate, when things were a bit livelier—they are often livelier at the beginning than near the end—much was made of whose fault it was, who did not regulate, and whether the Opposition would apologise for failing to regulate and for the financial collapse. That is rich coming from a party that, even when the financial crisis was beginning to crash around us, spent so much time saying that there was too much regulation. There are clear quotations to that effect, with the current Prime Minister saying in 2008:
	“As a free-marketeer by conviction, it will not surprise you to hear me say that a significant part of Labour’s economic failure has been the excessive bureaucratic interventionism of the past decade…too much tax, too much regulation, too little understanding of what our businesses need to compete in the modern world.”
	There are many other quotations like that. It is not just that the then Opposition were not standing up and saying that we needed more regulation; it is that they were going beyond that and saying that there was too much regulation.
	We all have to reflect on that. I have no hesitation in saying that I believe the last Government did not sufficiently regulate the financial services industry and should have done more. We have seen many of the difficulties caused by that. The FSA has been roundly criticised by many of the victims of financial collapses. My hon. Friend the Member for Rutherglen and Hamilton West (Tom Greatrex) talked a lot about Arch Cru and how it worked. Many of us in have had people come to us affected by the Equitable Life collapse, which was due to the failings of both the FSA and its predecessors. We know how people’s lives can be affected. It is extremely important that the new regulatory architecture, as it seems to be called, should grapple with the kind of situations that have arisen and how they affect people.
	We also need regulation that looks at the most vulnerable, which is particularly important. Citizens Advice, which deals with a lot of people’s problems, has suggested that the FCA be placed under an explicit duty to be proactive in preventing and responding to consumer detriment, and to have particular regard to the needs of low-income and otherwise vulnerable consumers. Earlier we heard about high-cost credit and what it does to people, but Citizens Advice has suggested that the problem goes much further. It includes, for example, the way that cheques have been phased out of the banking system, with little regard for the needs of those with little choice but to use them, and the way that people have perhaps been encouraged to bank online and not otherwise, which could be to the detriment of those who cannot do so. Indeed, it might even include the way that banking itself works. Many of us think it is wonderful to have free credit for having a current account and not to have to pay fees. However, there is a downside to that, in that it is often funded by what those who become overdrawn—not necessarily because they are wholly irresponsible; rather they may simply be hard up and experiencing difficulties—have to pay for that. Those are all things that we should be considering, but if the new body does not have an explicit duty to consider such matters, they might simply not be dealt with properly.
	We have heard, too, that some of the things that the Office of Fair Trading does on consumer credit—things that most of us probably feel it has not done very well
	over the years—will be transferred to the new organisation. Again, we need to know as much about that as possible, and as soon as possible. It is not good enough to say, “That will all come along in due course.” There have been clear failures in the system to look at the issue in enough depth, to act quickly enough and to ensure that people are not faced with poor banking and credit practices. Basic bank accounts is another area. The current Government appear not to want to place an obligation on banks to provide a right to a bank account, for which the previous Government had proposed to legislate. I hope that the Minister might take this opportunity to reconsider the position that he expressed when I had a Westminster Hall debate on this very subject some months ago, and to decide that he will go ahead with such a proposal, because the position on basic bank accounts has deteriorated since that debate.

Nicholas Dakin: My hon. Friend is making a clear and powerful case for regulation in appropriate places, and I would be grateful if she continued her exposition.

Sheila Gilmore: Although it is widely believed that regulation for the poorest is particularly important, those of us who have witnessed the kind of financial failure that so many people have had to put up with are aware that it is important not just to the poorest, but to a number of those with reasonable incomes. Our Work and Pensions Committee has been discussing pension auto-enrolment. One of the fears expressed was that people would not want to save because they did not trust the financial services industry. If we want people to save properly we must ensure that they feel that trust, and it could be re-created through proper regulation.

David Mowat: I agree with those who have said that we are here to make a good Bill better. The financial services industry is vital to our country, and it is possible that we lead the world in that industry more than in any other, yet it is an industry that lost us near enough £200 billion three or four years ago. We need to chart a course between not locking the door after the horse has bolted and ensuring that we establish a regulatory framework that looks to the future.
	Some have said that the most important aspect of regulation is not the structure, and that may cause us to wonder why we are moving from a tripartite structure to a twin peaks system. Many words have been used tonight, but I believe that one that has not yet been used provides the most important explanation for the failure of the tripartite structure. I refer to the word “underlap”. The structure failed because none of its three components felt wholly responsible for taking the action which was needed and which they suspected might be required. That is why the twin peaks system is sensible. It is not a “quartet”. I think that the shadow Chancellor’s point about a quartet indicated that he did not understand the issue of underlap or take it at face value. Undermining the responsibility of the Governor of the Bank of England by asking his deputies to act as whistleblowers takes us back to that structure of underlap.
	The Bill could be improved in three respects. First, I want to talk about the importance of international and European co-ordination, about which my right
	hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), the Chairman of the Joint Committee, talked at some length. I have a little more sympathy for Mr Barnier than he has. Secondly, I want to talk about competition. Thirdly, I want to talk about the link between the Bill and the work of the Independent Commission on Banking and the Vickers report.
	We are regulating two types of entity in the banking sector, those that are predominantly in the United Kingdom and those that are international, and I believe that the UK entities have been regulated to death. Apart from the ring fence, the capital requirements, all the buffers, the tier 1 and tier 2 capital and all that goes with it, I believe that we have fixed the problem, but one issue is still out there. If I were to predict where the next crisis will come, I would say that it will come in the international banks that straddle boundaries and continue to grow in complexity and scope: the investment banking and brokering parts of organisations such as Goldman Sachs, HSBC, Deutsche and BarCap.
	Collectively, those organisations control $4 trillion of derivatives. I do not fully understand the economic purpose of $4 trillion, but I do know that regulating those entities is outwith the competence of a nation state, and we must be careful that we do not think we are doing it by passing a banking Act within our nation state. The organisation within those banks is global, the way in which they look at themselves is global, and the way in which they move capital around is global.
	The Joint Committee took evidence from the Governor of the Bank of England, who explained that he would supply liquidity to an overseas bank with a subsidiary in the United Kingdom that wishes to fund activity in South America. The issue is global, and I want to talk about MF Global, the derivatives trader that went bust in the middle of October. Amazingly, the organisation was considered to be outside the scope of the PRA, yet its balance sheet was more than £40 billion. The capital flows between the USA and the UK were huge, and there now appear to be issues of insider dealing. Between £1 billion and £2 billion of customer funds have been lost. What happened to that bank is a model for the kinds of problems that we will have in controlling the financial system over the next two decades, and we need to focus on such organisations. It was a relatively small bank, only a tenth the size of Lehman Brothers, but its problems crept up on us and took us completely by surprise. There are many more banks and shadow banks like it. I would like the Minister to acknowledge this issue. It is not enough simply to say that we have colleges of regulators. I believe that this is the area in which the next crisis will arise. If I am right, I could be made Business Secretary.
	The hon. Member for Foyle (Mark Durkan) mentioned the pensions industry. The important aspect of the Bill is the competition objective. The City and the financial services industry would benefit from the systematic application of competition. The problem with systemically high salaries is not, in my view, the bonus culture; it is that there has not been enough competition in the industry to bring the salaries down. That can occur when the barriers to entry are too high, when there is market dominance or when there is asymmetric information—that is, when the organisations have much more knowledge than the punters. That is particularly true of the pensions industry. The hon. Gentleman mentioned fiduciary duty.
	The fundamental problem is that the charging is too high, but the fiduciary duty requirement will not take that away, because the organisations think that the charging is all part of their applying their fiduciary duty. The funds industry needs to reach a point at which something like 31% of a pension pot no longer goes on charges in the private pensions industry, and it needs competition to achieve that. Such charging is one reason why this country is so massively under-pensioned, and the issue needs to be fixed before auto-enrolment provides a further subsidy for the industry.

David Rutley: Thank you, Mr Deputy Speaker, for giving me the opportunity to speak in this important debate. Financial stability is the foundation that every economy requires for sustainable growth, so it is critical that we rebuild trust in the financial system and address the continuing crisis of confidence surrounding it. The Bill will play a pivotal role in achieving that objective, and I give it my wholehearted support.
	It has been well documented in the debate that the tripartite system, of which the shadow Chancellor was one of the chief architects, comprehensively failed when the credit crunch came along. A lack of clear accountability created real confusion and, instead of seeing an overlap of competing powers—the usual challenge that occurs in bureaucracies—we saw what my hon. Friend the Member for Warrington South (David Mowat) described as an “underlap”, a potent power vacuum. The Bill rightly seeks to address that problem.
	Even before the credit crunch began in earnest, Dr Willem Buiter, a former member of the Monetary Policy Committee, raised his concerns with the Treasury Committee in 2007. He said that the tripartite system was “risky”. He went on:
	“It is possible, if you are lucky, to manage it, but it is an invitation to disaster, to delay, and to wrong decisions.”
	Sadly, Dr Buiter’s concerns fell on deaf ears. The previous Government failed to heed such warnings and, just a few years later, they were completely unprepared to cope with the credit crunch. It has been left to this Government to clean up the mess, and to put in place a framework for financial stability that will work through the financial cycles. The Bill will play a critical role in that task.
	The Bill will move the British financial services sector on from the failed model of the past and, most importantly, seek to address the issue of accountability that was so confused under the previous arrangements. The new framework addresses the key flaw in the old system by putting the accountability back where it belongs—to the Bank of England. Just as the Bill has a clear focus on monetary policy through the Monetary Policy Committee, it will provide a clear focus on financial stability through the Financial Policy Committee. Its job will be to monitor the overall risk in the financial system, to spot dangerous trends and to stop excessive levels of leverage before it is too late. The creation of the FPC is a vital step on from the previous system.
	I also welcome the Chancellor’s announcement today about the new oversight committee. The Bank of England will continue to be accountable to Parliament, and the
	Treasury Committee will play an important role in guaranteeing oversight of the Bank’s new powers, about which I know some colleagues have expressed their concerns.
	With greater accountability and the right tools for facing a crisis, a clearer and more coherent framework will be in place to create the financial stability for which there is this overarching need. We should not forget, however, the importance of the European Union dimension to this debate. As my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) explained earlier, it is vital not to let the EU tie our hands in regulating Britain’s financial services sectors, and vital, too, for the capital requirements directive, currently making its way through Brussels, to give Britain the flexibility to take a robust approach to financial regulation. Britain should work with interested member states to ensure that any future EU regulation respects the rights of individual member states, including Britain, to set their own terms for financial stability.
	The Bill’s structures should be designed to achieve that objective, and I know that the creation of the committee that we have discussed today will be a vital step in this direction. Now is not the time to replace a domestic box-ticking agenda, which was so prevalent in the previous Government’s framework, with an EU one, which would be a further disaster.
	In my remaining time, I would like to talk about one of the most damaged parts of the existing system—the Financial Services Authority. Plainly, it is no longer fit for purpose. Even the FSA’s own report on the failure of the Royal Bank of Scotland acknowledged its own woeful capability in meeting its dual obligations of oversight and consumer protection. Clearly, it is time for change.
	The new framework will help to create a prudential regulation authority and, most importantly for my remaining remarks, the financial conduct authority. I believe that the FCA will help to protect consumers and drive competition. In the UK today, the big four banks have a staggering 77% of personal current accounts, which illustrates how concentrated market power has become in retail banking. All serious commentators recognise that it is time to instil greater competition in the sector.
	The barriers to entry for new entrants have simply been too high for too long. This problem must be tackled; I feel very strongly about it. For several years before I was elected as a Member of Parliament, I led Asda’s move into financial services. In so doing, the company genuinely sought to do something more than just add a new brand to familiar products. It was a very challenging process, and it is good to see relatively new entrants there nowadays, such as Metro Bank, the Co-op, Virgin Money and Tesco, working to do things differently from the established high street banks. There is much more work to be done; it is vital that the FCA encourages activity in this area.
	Beyond competition, the FCA will have important powers to protect customers from predatory behaviour. Again, it is vital for the FCA to be involved; it must name and shame the firms that are causing the problems. Without that, customers will not have the confidence in the financial markets that underpins an active, productive and, hopefully, world-beating financial services sector here in the UK.
	In conclusion, I give my support to this critically important legislation. It has been an honour to be involved in scrutinising parts of the Bill in my capacity as a member of the Treasury Committee. I hope that Members of all parties will support it this evening.

Jackie Doyle-Price: It is a great pleasure to have an opportunity to speak in what, in the main, has been a well-informed and thoughtful debate, and I pay tribute to all who have contributed to it. I want to pick up on some of the themes in the Joint Committee report, which my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) has highlighted.
	While the proposed structural reforms are welcome, there must also be changes in the culture and behaviour of the regulators and the firms they are dealing with if we are to deliver an appropriate system of financial regulation. We need a change in the regulatory culture and philosophy that will enable regulators to tackle issues as they emerge, rather than after the event.
	We also need a culture in which politicians allow the regulators to do their jobs. I will be looking for reassurances from Ministers that they will not interfere with regulators and that regulators will be empowered to do the job given to them in law. As we have seen from the FSA report into RBS, under the last Government politicians were all too keen to tell the FSA to back off from being overly intrusive in its regulation. There can be no accountability if politicians get in the way of regulators doing their jobs as set out in law.
	We must also ensure that the new regulators do not fall victim to regulatory capture. There was much criticism of the FSA following the collapse of HBOS and the revelation that a whistleblower had warned about the management of risk within the business. The FSA did write to HBOS and asked that action be taken in response to the issues highlighted by the whistleblower, but clearly the action taken was not sufficient. It might be noted that Sir James Crosby, the former chairman of HBOS, became the deputy chairman of the FSA. There are, of course, advantages in attracting senior practitioners to the boards of the new regulators. As we have discussed, we need people in place who understand the models of business and the financial products. However, we must not allow relationships between firms and the regulator to become too cosy and thereby to prohibit effective challenge.
	I particularly welcome the creation of the new financial conduct authority, which gives an opportunity to deliver much stronger protections for consumers. I say that as somebody who used to be a regulator in the consumer division at the FSA and an adviser to the Financial Services Consumer Panel. One of the comments made at the time of the financial crisis was that the FSA had spent too much time looking at conduct issues and not enough time considering prudential issues. In my experience however, it was not particularly good at conduct either. Again, we return to the point about the FSA not being empowered to do its job. It took five years for the FSA to deal with payment protection insurance mis-selling. The industry hired lots of lawyers to argue that there was no regulation to stop what it was doing, leaving the FSA powerless to take action without legal challenge even though it was blatantly obvious that the industry was mis-selling and ripping off consumers.
	In such an environment, the regulator needs real teeth. It also needs the support of politicians and Ministers. It does not need politicians getting in its way; instead, it needs their support. The regulator will never be able to match the legal resources that the amassed banks can mobilise and it will therefore face an unequal fight unless we stand behind it when there is consumer detriment. Ministers need to be prepared to set out what behaviours they consider to be unacceptable. We have talked about naming and shaming. We need to think about how much further we might go in that regard. We might learn from what the Prime Minister did with the energy companies just a few months ago. If we were to give a signal that such behaviour will not be tolerated, that would give the regulator the clout to encourage firms to change their behaviour.
	Clearly, that has been absent from our financial services regulatory regime. Instead, we have had an environment where the Prime Minister, the Chancellor and the City Minister were calling for light-touch regulation. That led to pressure on the FSA. We have heard today about the 8,000 rules that led to calls for light-touch regulation, but that focus on rules clouds the issue. What was needed was an environment where the regulator could tackle the risk of consumer detriment within the business it was supervising. We needed fewer rules, not a less active regulator.
	That is where we come back to the whole issue of culture and behaviour by the regulator and the firms. We need a regulator that provides an appropriate challenge, and one which can exploit the source of profit in the business model and ensure that institutions treat their customers fairly. We need a regulator that challenges the behaviour of the firm, not its compliance with individual rules, and which will make it clear who is accountable for what in the regulatory system.
	Finally, I wish to give my support for the transfer of the regulation of credit to the new financial conduct authority. Consumer debt is probably the biggest cause of detriment to our financial industry and it has always lacked any transparency; it was not clear who was responsible for regulating that. The Office of Fair Trading has been a rather anonymous organisation to the public. As we have heard, the proposal also gives us the opportunity to ensure that the new high-cost lenders can be tackled. We have heard lots of discussion about the need for price regulation and caps, but this is about having responsible lending rules and making sure that a suite of products are offered to fit every consumer’s circumstance. I look forward to engaging in the debate further as the Minister develops those proposals, and I give my wholehearted endorsement to the Bill.

Several hon. Members: rose —

Mr Speaker: Order. The wind-ups from the Front Benchers begin at 9.40 pm, but before then two remaining Members are seeking to catch my eye, both of whom can be accommodated if they thoughtfully divide the time roughly equally between them.

Steven Baker: Thank you, Mr Speaker. I refer the House to my interest in Cobden Partners, which has been established to help nations solve their banking crises.
	I very much welcome the Bill, which I hope and believe will prove to be the zenith of contemporary thought on bank reform. With due deference to my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), I wish to talk about three potential elephants in the room. First, I wish to make some remarks about accounting, then I wish to discuss the conduct of individuals and liability, and finally I wish to talk about financial stability.
	I know that the Minister has heard my views on the international financial reporting standard, but I draw his attention to a letter in yesterday’s Financial Times by Lord Lawson, under the headline “Forget Fred and focus on the real banking scandal”. He stated:
	“The auditing of banks’ accounts, however, is fundamentally flawed in itself. The IFRS accounting system itself has proved to be damagingly pro-cyclical, and the ability to pay genuine (and genuinely large) bonuses out of purely paper profits, which are never subsequently realised, is at the heart of both the bonuses that cause such public and political outrage, and the reason why bank management consistently does so well when bank shareholders do so badly.”
	Andy Haldane, the executive director for financial stability at the Bank of England, gave a speech in December. I shall not read out all the remarks that I meant to cover, but he concluded by saying that
	“if we are to restore investor faith in banking sector balance sheets, nothing less than a radical rethink may be required.”
	He was referring, entirely, to accounting standards. I therefore refer the Government to my private Member’s Bill introduced on 13 May 2011, which seeks to introduce parallel prudent accounting for banks. It is a couple of pages long and I hope that it can be added to this Bill.
	I also refer the Government to “The Law of Opposites”, a paper produced by the Adam Smith Institute and written by my colleague Gordon Kerr, who has spent 25 years “gaming accounting rules”, as he would perhaps say, in order to make a profit. The banking system is in a far worse state than is generally believed. I do not see how either the Financial Policy Committee or the prudential regulation authority can operate without a true and fair view of the state of financial institutions, and I do not believe for a moment that the international financial reporting standards give that to us.
	On the conduct of individuals, we fail too often to think about the pattern of regulation in which we have engaged. It seems that the first thing that legislation does is to damage the incentives and disciplines of the market. Having thereby created moral hazard, regulators come along to try to mitigate the consequences of that moral hazard. A banking licence today is a licence to lend money into existence, at interest, with the risk socialised. When we look at central banking, deposit insurance and limited liability, we find that moral hazard is absolutely rife in the banking industry, even before we consider investment banking. I suggest to the Government that it is time to increase the liability of banks’ directors. There should be strict liability for them, and bonuses should be held in a pool and treated as capital for at least five years. I will introduce a private Member’s Bill to that effect on 29 February.
	We have talked about financial stability and the difficulty of defining it. There has been a sense that there is some kind of equilibrium economy—an evenly rotating one—in
	which there could be a sustainable and stable quantity of credit. Indeed, on pages 14 to 16 of the Joint Committee’s report there is an interesting discussion about the need to regulate credit.
	To leave time for my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), I will just say that if we were talking about any other commodity and were discussing adding to a failed regime of price control a regime of quantity control, we would certainly reject the idea out of hand. In Lord George’s testimony to the Treasury Committee before the crisis, he made it absolutely clear that the Bank of England had created a credit bubble to avoid falling into recession, yet we are going to give the Bank even more powers, more tools, more risk of ruin and more big-player effects and distortions of economic expectations.
	I congratulate the Government on introducing the Bill, and I sincerely hope that it represents the absolute zenith of contemporary thinking on interventionist bank reform.

Jacob Rees-Mogg: I thank my hon. Friend the Member for Wycombe (Steve Baker) for being so brief. I refer Members to my entry in the Register of Members’ Financial Interests.
	We should welcome the great reform that is restoring the Governor of the Bank of England’s eyebrow to its rightful place in bank regulation. It is, quite seriously, an important thing to be doing, as banks will see by the supercilious movements of Sir Mervyn King’s brows that they are doing things wrong. That has been a useful test in the past. More important is the FPC, which will have a very wide-ranging role in ensuring stability, and I wonder to what extent the Government have considered how that role will interact with that of the Monetary Policy Committee. One of the risks through the early years of this century was interest rates remaining very low because of an apparently low inflation background, and that was probably a mistake because of the growth in China and its import effects, with very high domestic and asset price inflation. Could the FPC have overruled the MPC on interest rates if it had viewed that as a serious risk? I wonder whether Her Majesty’s Government might consider giving a broader set of instructions to the MPC to allow it to co-operate with the FPC’s wider role.
	The other important aspect of the FPC’s role will be its working with international regulators and having proper flexibility, particularly with bank capitalisation rates. Europe is going for very high rates as the economy is turning down and that is quite wrong. We probably need low bank capitalisation rates now and high ones in a boom. It is important that the FPC should have that flexibility to adjust bank capitalisation rates for this economy. Just as we set our own monetary policy because we have our own currency, so we should set our own regulatory framework, suited both to our monetary policy and to the risks we are taking, and what is happening in Europe might cause problems for the FPC in dealing with that.
	Overall, the FPC of course has an impossible task, because the credit cycle will wax and wane over the next century, whatever we set up. We can go back to the tulip mania and the South Sea bubble and so on; these things
	always happen and people always warn of them. Dr Peter Warburton warned in 1999 of the coming credit crisis, saying that central banks of the world had
	“inadvertently created the potential for widespread debt defaults and economic disintegration on an epic scale.”
	Economists were warning of the crisis, but people did not take any notice. The FPC will have to be very robust and Cassandra-like to be able to say, “There is a bubble; we must prick it.” When the FPC is set up, one of the first bubbles it might have to deal with will be in the gilt market, because a 2% gilt yield, without a gold standard, is an historic low for yield since the 1890s and is something that many would consider a bubble. We must bear in mind that indexed gilt links were producing a negative return about a fortnight ago. Will the FPC have the courage to say to the Government, “We think your own Government stock is in a bubble”?
	I want to speak briefly about the Financial Services Authority, which regulates me, and to say a very little about it, which is that it is very expensive. I encourage the Treasury to take its fees into the Treasury and fund the new body from the Treasury. The FSA is asking for a 15% increase in its budget this year in order, among other things, to increase pay by 3.5%. No other arm of government is doing that and it is why hypothecated taxation and fees are fundamentally bad. It would be better to go through the Treasury. I also happen to think that the FSA is rather arbitrary in its rules—but you have been kind in calling me, Mr Speaker, and I know that we must have the wind-ups.

Christopher Leslie: First, I congratulate hon. Members who have taken part in the debate this evening, particularly those who served so diligently on the pre-legislative scrutiny Committee and on the Treasury Select Committee, many of whom are in warmer foreign climes at present. I thank in particular the right hon. Member for Hitchin and Harpenden (Mr Lilley) for chairing the pre-legislative scrutiny Committee and my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) and my hon. Friend the Member for Leeds East (Mr Mudie), who contributed to the debates, for their work.
	My hon. Friends have spoken on a number of topics this evening, but it would be invidious in the short time left for Front Benchers—only 10 minutes each—to try to discuss them in more detail. But do not worry Mr Speaker, because we will have about 10 hours in every one of the four weeks when we consider this Bill in Committee, so we can elaborate on each other’s comments then. Let me just note that my hon. Friend the Member for Walthamstow (Stella Creasy) rightly spoke about the need for reforms to high-cost credit, that my hon. Friend the Member for Rutherglen and Hamilton West (Tom Greatrex) spoke about the collapse of Arch Cru and the need for lessons to be learned, and made a reasonable call for a Treasury inquiry into those matters. My hon. Friend the Member for Islwyn (Chris Evans) emphasised the need for more action on financial education and my hon. Friends the Members for Glasgow North East (Mr Bain) and for Foyle (Mark Durkan) talked about the current difficulties in the banking sector, particularly with high executive pay. Also, my hon. Friend the Member for Edinburgh East (Sheila Gilmore) spoke about the importance of addressing financial exclusion and access to basic bank account services.
	The Bill is a significant piece of legislation and we support the moves to a prudential regulatory approach with improved systemic oversight, but there are some serious misgivings about the proliferation of agencies and the confused responsibilities in the Bill, which are far from ideal. As we have heard, we are moving from a tripartite system to a quartet system, and the acronyms abound. That might work, but we need clear lines of accountability. That was the point that my right hon. Friend the shadow Chancellor was making. There are issues with complexity, and risks associated with putting all our hopes on placing regulation in the hands of the Bank of England. The formation of the Financial Policy Committee is sensible, but we need to ensure that it has the right composition, with fewer Bank of England officials in its membership, and that appointments reflect the balance across the economy.
	We have touched on a number of issues relating to the economy, such as responsibility and long-termism, and we have heard about consumers of financial services, many of whom are, after all, constituents of ours, for whom we have an obligation to speak. There will undoubtedly be a debate about the objectives of the Financial Conduct Authority and whether they are sufficiently focused on the fairness, transparency and efficiency we need in the system. There is some confusion in the Bill regarding the FCA’s powers when it issues a warning notice, and the extent to which such notices will be published. Will it be known to consumers or will there be a nod and a wink, with notices going privately to the companies concerned? Is that the right balance? I am not entirely sure that that works.
	We have to do a lot more to emphasise other consumer protection matters. We must surely grasp the nettle and take this opportunity to do what we can to improve financial education in all our schools up and down the country. We must also make sure that the information available to customers more generally is accessible, intelligible, clear and understandable so that we can try to do something about the asymmetry of information that hon. Members have discussed.
	My hon. Friends the Members for Islwyn and for Foyle suggested that a fiduciary duty of care should be placed on providers of financial services, and we think that there are compelling arguments in favour of such a change, particularly as some important points about pensions and charges need to be brought out in the debate, as the hon. Member for Warrington South (David Mowat) mentioned.
	My hon. Friend the Member for Walthamstow continued her campaign to introduce a time limit and a limit on high charges for credit, particularly for the vulnerable in our constituencies. I agree that it is time to ensure that the FCA has powers to take action in that regard and on fee charging, debt management plans and further safeguards for depositors.
	When it comes to responsibility and the long-term changes that are needed to ensure that financial services address the real economy as well as the needs of consumers and constituents, it is important that we learn the lessons of the past. Therefore, we must look at the FSA’s report on RBS and take action in the Bill to end the bias in advisory fee structures in takeovers. We must take the opportunity to reform acquisition and merger rules, as the FSA has recommended. To what extent can we use the opportunity presented by the Bill to enhance the
	role of the Financial Reporting Council, and possibly the FCA, to support sound stewardship and shareholder accountability and to improve the corporate governance that many hon. Members have talked about, never mind the reforms that are so overdue to executive pay, the bonus culture and the remuneration committees that have been so much in the news in recent days? It is also important to take the opportunity to do more to support a diverse financial services sector, supporting mutuals and building societies, many of which do not fit into the neat capital requirements and plc structures imposed on them by current regulatory arrangements. Those are some of the changes that we will want to introduce in Committee.
	It would be wrong not to take this opportunity to talk about one of the fundamental vacuums in the Bill: the insufficient attention to jobs, growth and finding ways to support our economy. The action taken by the Financial Policy Committee and the Bank of England will undoubtedly have a big impact on the availability of credit, not least because the Government have signally failed to do anything to encourage bank lending: Project Merlin has already fallen by the wayside and credit easing has still not commenced. The FPC has the objective of protecting and enhancing stability, but we believe that it should also be guided by the objective of promoting employment and the long-term growth prospects of the economy. That is something that the CBI has argued for, and it happens in similar situations elsewhere around the world.
	Perhaps the Government’s difficulties stem from their partisan design of these structures when the Chancellor was in opposition. As we heard in his speech, the Government have tried to tell a domestic political narrative that pins the failures of the credit crunch solely on the previous Administration, and suggests that it is something that happened only in this country. In his revisionist attempt to re-write history, not even once did he mention the problems in other countries, or the fact that there was a global financial crisis. He suggested that what happened, happened only here in Britain—as if the then Prime Minister got on a plane and caused all the problems in America, Spain, Germany and elsewhere, as well as in the UK. The Chancellor’s analysis of the history of the credit crunch is lacking, to say the least. It would have been better if he had redesigned regulation in a way that recognised the casino culture of the global banking sector at the time of the financial crisis.
	We are faced with a Bill that contains a number of problems, but ones that we hope can be amended and improved. The regulatory structure fails to sit adequately with the international and European regulatory environments. The EU’s supervisory bodies are split thematically to deal with banking, pensions and insurance, rather than mirroring the conduct and prudential arrangements set out in the Bill. Given that the EU drives the vast bulk of the regulatory agenda that will be able to overrule the domestic regulators that we are debating, it is important that the Government state clearly how they will ensure that our voice is not marginalised in those regulatory environments—if, indeed, it is possible to be even more out in the cold than the Chancellor is at present.

Mark Field: Will the hon. Gentleman give way?

Christopher Leslie: I am afraid that I have only one minute before the Minister has to speak, in which time I shall also emphasise the points that my right hon. Friend made about the lack of Bank of England accountability in the proposals before us.
	The hon. Member for Bury St Edmunds (Mr Ruffley) correctly pointed out the problems of a lack of a proper supervisory function in the court of the Bank of England, and they absolutely have to be addressed. There are problems also with the regulatory structure, which on the one hand describes itself as twin peaks, but looks as though it has at least four elements to it—the quartet model, which we have heard about today. Will we hear the voices of those four institutions in their own right, or will they be subjugated to the voice of the Governor of the Bank of England?
	One of the most important issues for us in the House of Commons is accountability to Parliament. We are investing an enormous amount in the Bank of England, with quasi-legislative powers being placed in its hands, and my hon. Friend the Member for Leeds East (Mr Mudie) was absolutely right about the need for us tread carefully in relation to those accountability questions.
	We will not object to the Bill this evening, and we hope that it gets a Second Reading, but it is right that we shall spend time debating its contents in detail. Some serious amendments are needed, and we want stronger regulation that is fit for purpose, has sufficient checks and balances, delivers financial stability, promotes employment and growth, protects consumers and safeguards the interest of the taxpayer. The whole country wants to see banks that serve the best interests of the wider economy and society, and we hope that Ministers will listen and amend their Bill accordingly.

Mark Hoban: This has been a thoughtful debate. We have had 21 speeches, led by the Chairman of the Joint Committee, my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), who was supported by his colleagues on the Committee, including my hon. Friends the Members for Bury St Edmunds (Mr Ruffley) and for Warrington South (David Mowat), the right hon. Member for Newcastle upon Tyne East (Mr Brown) and the hon. Member for Leeds East (Mr Mudie).
	We have also heard from my hon. Friends the Members for St Austell and Newquay (Stephen Gilbert), for West Suffolk (Matthew Hancock), for Wyre Forest (Mark Garnier), for Cities of London and Westminster (Mark Field), for North East Cambridgeshire (Stephen Barclay), for Vale of Glamorgan (Alun Cairns), for Macclesfield (David Rutley), for Thurrock (Jackie Doyle-Price), for Wycombe (Steve Baker) and for North East Somerset (Jacob Rees-Mogg). There were some thoughtful speeches from Opposition Members, too, of which I would highlight those made by the hon. Members for Islwyn (Chris Evans) and for Foyle (Mark Durkan).
	I shall deal with some of the issues that have been raised in the debate, and first with Europe, which hon. Members on both sides raised several times. It is absolutely right to ensure that, at a time when Europe is becoming increasingly important in determining the regulatory framework, we engage in the debate about Europe. We took on board the Joint Committee’s comments, and it is fair to say that the regulators and the Treasury
	already co-operate effectively on influencing the shape of European regulation, but it is also important that we get the regulation right to enable the FSA’s successor bodies to supervise firms based in the UK.
	That is why, in the debate about capital requirements directive 4, for example, we seek to achieve a single rule book through high common minimum standards of capital, and to give the supervisors in the UK the flexibility to go further in imposing high levels of capital if they think it appropriate, given the structure and nature of banking in the UK. That will also enable them to introduce the reforms proposed by Sir John Vickers and his commission.
	Several hon. Members raised the issue of the Financial Policy Committee, so let me explain why we have set it up. It is a fundamental part of the architecture, it ensures that there is a body tasked with identifying risk to financial stability and, crucially, it remedies a flaw in the architecture that the previous Government set up, giving it the power to tackle those risks.
	Those powers are important. We talked about the macro-prudential tools that the FPC will have, but it will also be able to give advice on where the regulatory perimeter should be in order to tackle issues such as shadow banking. It is also worth pointing out, in response to a comment made two or three times this evening, that its objective is symmetrical: it is about financial stability and considering the impact of its decisions on the prospects for growth in the economy. That symmetry is absolutely important, and we have gone a long way to address the concerns that have been raised today.
	As well as the FPC, we will also see a move to unite key parts of micro and macro-prudential supervision in the Bank of England, joining it to the Bank’s existing responsibilities for stability and monetary policy and removing a structural flaw that helped such disastrously unsustainable levels of risk to build up in the run-up to the financial crisis.
	The reforms answer the question posed during that crisis: “Who is in charge?” There is currently confusion over who is in charge in a financial crisis, and that cannot continue. The Treasury Committee, the Joint Committee, the Governor and the previous Chancellor of the Exchequer all recognise that. The Government will end that confusion. The Bill makes it clear that as soon as there is a material risk to taxpayers’ money, the Chancellor will have targeted power to direct the Bank to take action. The responsibility for each part of that action is clear, whether it is with the PRA in triggering the use of the special resolution regime or with the Bank in the day-to-day responsibility for crisis management. As soon as there is a threat to public money, the Bank must notify the Chancellor of the Exchequer. That happens when there might be a risk. It does not prejudge what the decision should be. I think that that deals with the point that the shadow Chancellor raised early in his speech.
	On consumer protection, the old regulatory structure not only failed to maintain financial stability, but let down consumers. As the FSA’s report into RBS made clear, the remit given to the FSA by the previous Government was too broad, covering both prudential and conduct-of-business regulations. Those require different cultures, experience and expertise. That is shown most acutely by the FSA’s failure to prevent the payment protection insurance mis-selling scandal. With prudential
	supervision at the Bank of England, we will have a regulator that is focused on conduct issues and driven by consumer protection, market integrity and promoting effective competition.
	The FCA will be more proactive, transparent and accountable. It will have new powers to deliver better consumer outcomes, including the power to ban toxic products. It will promote effective competition so that consumers get a better deal. My hon. Friend the Member for North East Cambridgeshire talked about the risk appetite of the FCA. Let me make it clear that it will be much more likely to intervene to tackle consumer detriment than it has been in the past. That is an important advance that will protect consumers.
	Across the House, there has been widespread concern about consumer credit. That matter has been debated this evening. The hon. Member for Walthamstow took a narrow view about what one can do to protect consumers and focused on the total cost cap. Like my hon. Friends the Members for St Austell and Newquay and for Thurrock, I think that we need a broader range of powers to ensure that there is proper consumer protection for those who take out loans. There should be the same level of protection that people take for granted when they buy an insurance policy or take out a mortgage. The Bill gives us the power to transfer the regulation of consumer credit from the Office of Fair Trading to the FCA, giving a better deal for borrowers.
	As my right hon. Friend the Member for Hitchin and Harpenden and others have said, our reforms are as much about the style of regulation as about the structure. They are about culture, focus and philosophy. A key failure of Labour’s regulatory system was its focus on tick-box regulation. The financial crisis demonstrated the inadequacies of that approach to bank regulation. That approach also helps to explain failures of conduct regulation, such as with PPI. Judgment and discretion will be at the heart of prudential and conduct supervision. We expect the PRA and FCA to be pro-active, to challenge and to intervene.
	I believe that we will see a significant change in conduct regulation and prudential regulation, moving away from the detailed prescriptive rules of the past to giving the regulators the power and authority to intervene, exercise their judgment and spot problems as they emerge, rather than waiting to resolve them once the crisis has broken. That will tackle the broken system that we inherited. That style and structure of regulation let down consumers who were sold toxic products, taxpayers who paid the bill for the banking crisis, and those who relied on banks to finance their business or to enable them to buy a home. Our reforms will change the structure and style of regulation.
	The Bank of England and the PRA will have clear responsibility for the stability of banks, insurers and the financial sector. The FCA will have the power to ban the sale of toxic products and to name and shame those who have let consumers down. The FPC, the PRA and the FCA will exercise the judgment and discretion that are needed to supervise financial services better across the UK. The Bill will help mend our financial system to benefit families, businesses and the taxpayer. I commend it to the House.
	Question put and agreed to.
	Bill accordingly read a Second time.

Financial Services Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),
	That the following provisions shall apply to the Financial Services Bill:
	Committal
	1. The Bill shall be committed to a Public Bill Committee.
	Proceedings in Public Bill Committee
	2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 20 March 2012.
	3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
	Consideration and Third Reading
	4. Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
	5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
	6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
	Other proceedings
	7. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Bill Wiggin.)
	Question agreed to.

Business of the House

Motion made, and Question put forthwith (Standing Order No. 15),
	That, at this day’s sitting, the Second Reading of the Consumer Insurance (Disclosure and Representations) Bill [Lords] may be proceeded with, though opposed, until any hour and Standing Order No. 41A (Deferred divisions) shall not apply.—(Bill Wiggin.)

Financial Services Bill (Money)

Queen’s Recommendation signified.
	Motion made, and Question put forthwith (Standing Order No.  52 ( 1 ) (a) ),
	That, for the purposes of any Act resulting from the Financial Services Bill, it is expedient to authorise—
	(1) the payment out of money provided by Parliament of—
	(a) any expenditure incurred under or by virtue of the Act by a Minister of the Crown or government department (apart from any expenditure to be met from the National Loans Fund), and
	(b) any increase attributable to the Act in the sums payable under any other Act out of money so provided, and
	(2) the payment out of the National Loans Fund of any increase attributable to the Act in the sums so payable under any other Act. —(Bill Wiggin.)
	Question agreed to.

Financial Services Bill (Carry-over)

Motion made, and Question put forthwith (Standing Order No.  80A(1 ) (a) ),
	That if, at the conclusion of this Session of Parliament, proceedings on the Financial Services Bill have not been completed, they shall be resumed in the next Session. —(Bill Wiggin.)
	Question agreed to.

Business without Debate
	 — 
	Consumer Insurance (Disclosure and representations) Bill [Lords]

Motion made, and Question put forthwith (Standing Orders Nos. 59(3) and 90(5)), That the Bill be now read the Second time. —(Mr Hoban.)
	Question agreed  to .
	Bill accordingly read a Second time; to stand committed to a Public Bill Committee (Standing Order No. 63).

Delegated Legislation

Motion made, and Question put forthwith (Standing Order No. 118(6)),

Senior Courts of England and Wales

That the Civil Procedure (Amendment No. 3) Rules 2011 (S.I., 2011, No. 2970), dated 14 December 2011, a copy of which was laid before this House on 14 December, be approved.—(Bill Wiggin.)
	Question agreed to.
	Motion made, and Question put forthwith (Standing Order No. 118(6)),

Court of Judicature, Northern Ireland

That the Rules of the Court of Judicature (Northern Ireland) (Amendment No. 4) 2011 (S.R. (N.I.), 2011, No. 422), dated 14 December 2011, a copy of which was laid before this House on 15 December, be approved.—(Bill Wiggin.)
	Question agreed to.
	Motion made, and Question put forthwith (Standing Order No. 118(6)),

Council Tax

That the draft Local Authorities (Conduct of Referendums) (Council Tax Increases) (England) Regulations 2012, which were laid before this House on 11 January, be approved.—(Bill Wiggin.)
	Question agreed to.

Delegated Legislation (Committees)

Ordered ,
	That the School Admissions (Admission Arrangements and Co-ordination of Admission Arrangements) (England) Regulations 2012 (S.I., 2012, No. 8), be referred to a Delegated Legislation Committee.—(Bill Wiggin.)

Business of the House (7 February)

Ordered ,
	That, at the sitting on Tuesday 7 February paragraph (2) of Standing Order No. 31 (Questions on amendments) shall apply to the Motion in the name of Mr Edward Miliband as if the day were an Opposition Day; proceedings on the Motion may continue, though opposed, for three hours and shall then lapse if not previously disposed of; and Standing Order No. 41A (Deferred divisions) shall not apply.—(Bill Wiggin.)

Business of the House (8 February)

Ordered ,
	That, at the sitting on Wednesday 8 February, notwithstanding the provisions of Standing Order No. 16 (Proceedings under an Act or on European Union documents), the Speaker shall put the Questions necessary to dispose of proceedings on the Motion in
	the name of Secretary Theresa May relating to Police Grant Report not later than three hours after the commencement of proceedings on the Motion, and shall put the Questions necessary to dispose of proceedings on the Motions in the name of Secretary Eric Pickles relating to Local Government Finance and Council Tax not later than six hours after the commencement of proceedings relating to Police Grant Report; proceedings may continue after the moment of interruption; and Standing Order No. 41A (Deferred divisions) shall not apply.
	—(Bill Wiggin.)

Justice

Ordered ,
	That Mrs Linda Riordan be discharged from the Justice Committee and Seema Malhotra be added.—(Geoffrey  Cl ifton-Brown, on behalf of the Committee of Selection.)

PETITION
	 — 
	Police Cuts (Humberside)

Nicholas Dakin: In just a few hours on a Friday lunchtime, the petitioners collected more than 300 signatures in Scunthorpe town centre opposing police cuts in the area.
	The petition states:
	The Petition of residents of Scunthorpe,
	Declares that the petitioners are opposed to plans to cut £30 million from Humberside Police’s budget over the next four years; declares that the Petitioners reject the Government’s claim that these budget cuts will not have an effect on the quality of policing provided; and further declares that the Petitioners believe these cuts will mean the loss of 331 jobs, on top of the 780 staff who were already offered voluntary redundancy last year.
	The Petitioners therefore request that the House of Commons urges the Government to reverse its decision to cut £30 million from the Humberside Police budget and reconsider the proposed funding allowance for Humberside Police.
	And the Petitioners remain, etc.
	[P001004]

EARLY-DAY MOTIONS

Motion made, and Question proposed, That this House do now adjourn.—(Mr  Newmark .)

Graham Evans: I am delighted to have secured this Adjournment debate. Indeed, Adjournment debates are a useful opportunity for us Back Benchers to raise issues that might otherwise not be discussed. The quality of speeches and debates that we have heard on a wide range of fascinating topics in all the many Adjournment debates since the election has really showed that this is an excellent tradition that should be maintained. However, this evening I am here to talk about another parliamentary tradition that is of considerably less worth—early-day motions.
	Nearly 3,000 early-day motions have so far been tabled in this Parliament. It is estimated that they cost the taxpayer around £1 million every year. Given that the spending review has looked carefully at every aspect of our public expenditure, it is only right that we take time to reflect on the cost-effectiveness and value of early-day motions. We should ask ourselves whether it is value for money to spend so much taxpayers’ money on a mechanism that has no legislative effect and rarely has any influence whatever. We should consider whether a mechanism that does not ensure a parliamentary debate on a subject, no matter how many Members sign a motion, is an effective mechanism for Back Benchers to raise important issues.

Robert Halfon: An answer to my hon. Friend’s suggestion might be for all early-day motions to be published only on the internet, rather than on the Order Paper, which would save a fortune. Would it not be better to call early-day motions “The Book of MP Petitions”, because that is what they are in essence? That does not negate the fact that they are useful instruments for campaigning.

Graham Evans: I shall mention saving costs on printing by publishing online later in my speech, but my hon. Friend makes a good suggestion on how we should reform early-day motions and what we should call them, which should be considered along with other things.
	We should think about the future role of such a mechanism now that the Backbench Business Committee has been successfully established. The truth is that early-day motions have been devalued by the sheer volume that has been tabled—nearly 3,000 were tabled during the last year. Early-day motions have been devalued by the utter ridiculousness many of them. There are motions congratulating football teams on promotion; motions congratulating two celebrities on their engagement; motions arguing about the origins of Robin Hood; motions suggesting a common hash tag to be used by MPs on Twitter; motions praising Ann Widdecombe’s dancing ability; and even a motion expressing support for an asteroid wiping out the entire human race.

James Wharton: As my hon. Friend is eloquently setting out, does not the sheer quantity of early-day motions on such a range of topics, which are often rather inconsequential, undermine the function that they were designed to serve?

Graham Evans: I wholeheartedly agree with my hon. Friend. The cost to the House, including in time, means that it is time to consider reform.

Simon Hart: Does my hon. Friend also agree that pressure groups and individuals believe that early-day motions have value, and are therefore disappointed when they discover, despite their best efforts, that they come to nothing?

Graham Evans: I absolutely agree with my hon. Friend. Many organisations such as charities employ lobbyists, and early-day motions are often used to justify their existence. I shall come to that shortly.

Paul Flynn: Will the hon. Gentleman give way?

Graham Evans: I will give way to my hon. Friend.

Paul Flynn: I am grateful, and I welcome our new friendship.
	Is the hon. Gentleman aware that it is now forbidden in the House to read out the names of the fallen in Iraq or Afghanistan? The only way that the House can confront the results of its own decisions—by reading those names—is through early-day motions. He might have seen 24 early-day motions that record the names of those who fell in Afghanistan. What would he do to change the system so that he does not block the only way in which the House can record its respect and gratitude to those who have fallen in battle?

Graham Evans: Other mechanisms can be used to pay respects in the House. For example, the Prime Minister and the Leader of the Opposition pay their respects at the beginning of every Prime Minister’s questions.
	The reputation of the House is damaged even further by the mountains of early-day motions that are drafted by lobbyist firms who use them as little more than a tool to justify their services to naive clients. Plenty of willing Members are more than happy to oblige and table such motions on behalf of lobbyists. All hon. Members know that to be true, because we get bombarded by the same pro forma requests from lobbyists to table this or that early-day motion.

Andrew Bingham: We are besieged by e-mails from our constituents asking us to sign early-day motions that we know are of little consequence because of the volume of them. We have to send a letter disappointing our constituents because they are led to believe that early-day motions will change the world, whereas we know that they will not.

Graham Evans: My hon. Friend raises another good point: the sheer volume of early-day motions means that many constituents do not get the outcomes they seek.
	We need to be totally frank about this. We have lobbyists trying to convince their clients that they are being very influential and making progress on their issue by getting an early-day motion tabled with lots of signatures. We have Members who want to convince constituents that they really care about a particular
	issue and have even taken the important-sounding step of tabling or signing an early-day motion. And we have local journalists who, desperate for copy, use the press release from the Member bragging about how they are backing an early-day motion. The cycle repeats, but nothing actually gets achieved.

Jason McCartney: Like my hon. Friend I was inspired to give up signing early-day motions in August 2010 and the world has not stopped turning. He proposes some good ideas to take matters forward. For example, my hon. Friend the Member for Wycombe (Steve Baker) and I went to the Backbench Business Committee and got a debate on Kashmir, which was a much better way to raise that issue than just tabling an early-day motion. I like the way in which my hon. Friend the Member for Weaver Vale (Graham Evans) is coming forward with alternative ideas.

Graham Evans: My hon. Friend raises the point that there are now other mechanisms. The Backbench Business Committee is one and Westminster Hall debates, in which Ministers are held to account and have to give answers, are another. There are new avenues for Back Benchers now.
	It is this frustration that led me to table my own, admittedly tongue-in-cheek, early-day motion 432, calling for early-day motions to be reformed or abolished. I believe that the other 44 Members who have kindly signed my early-day motion share my frustration—

Steven Baker: If I signed early-day motions, I would have signed my hon. Friend’s early-day motion.

Graham Evans: I am grateful to my hon. Friend.
	As I was saying, the signatories include Members from both sides of the House, with several senior Members and former Cabinet Ministers and, astoundingly, my hon. Friend the Member for Worthing West (Sir Peter Bottomley). When I first discovered he had signed my early-day motion, I wondered whether it was perhaps by accident—

Peter Bottomley: I acknowledge that I have signed a number of early-day motions—[ Laughter. ] I think we should consider the issue along with parliamentary questions. Questions take up more space in Hansard than early-day motions do, and most of them are pretty useless. Of the early-day motions that I have signed, one helped to get Krishna Maharaj off death row in Florida, and another helped to get cervical cancer vaccinations to include genital warts, which will save 125,000 people a year from having an unpleasant, antisocial disease. So there are purposes that can be met by early-day motions, but I am enjoying my hon. Friend’s speech.

Graham Evans: I am most grateful for that intervention.
	There is considerable and growing support from colleagues from both sides of this House for this issue to be looked at. Personally, I am very much open to debate on whether we simply abolish or dramatically reform early-day motions. I have had a number of conversations with colleagues and the staff of the Table Office and there are plenty of ideas floating around
	about how early-day motions can be improved. They must be made more cost-effective, but we could also look at limiting the number that an individual Member can table and sign in a single Parliament and perhaps guarantee that the few early-day motions with the most support are guaranteed to be debated.

Bob Russell: Following the hon. Gentleman’s theme, would he also put a limit on the number of parliamentary questions an MP could table?

Graham Evans: I am not sure what the answer is to that question. Perhaps we could discuss it over a cup of tea in the Tea Room later.
	It might be possible to formalise the mechanism of early-day motions within the framework of the Backbench Business Committee. The hon. Member for Nottingham North (Mr Allen) has suggested that Members should be able to add their name to only one early-day motion each week, with the most popular one being debated the following week. The remaining early-day motions would then fall off the agenda. That way, Members would be forced to think very carefully about which early-day motion to back, rather than mindlessly tabling and signing dozens at a time. Members would be most unlikely to want to waste their single early-day motion on something daft or a pro forma drafted by lobbyists.
	As I mentioned, the current cost of EDMs could also be slashed dramatically. Last year, printing costs alone accounted for £776,000. On top of that, substantial staffing costs add up to more than £1 million a year. There is no need to print multiple copies of every EDM each sitting day. EDMs could be kept largely electronic, with paper lists printed only on request. That is nothing complicated, only common sense to help save the taxpayer substantial sums over the course of a Parliament.
	I hope that I have set out a clear case why EDMs are unsustainable in their current form and how we might go about reforming them. I also hope that this debate will help inform constituents about the reality of EDMs. Perhaps many charities and businesses that spend millions hiring lobbyists will listen to tonight’s debate and be more sceptical when public affairs consultants try to convince them of their effectiveness by getting an EDM tabled. Most of all, I hope that members of the Procedure Committee are listening carefully and realise how much support there is for change. I urge them to consider EDMs carefully and begin the process of reform as soon as possible. If we get it right, we can improve Back-Bench Members’ ability to raise topical issues, get better value for taxpayers’ money and restore faith in the House. There is no better time than the present.

David Heath: I congratulate the hon. Member for Weaver Vale (Graham Evans) on securing this debate, and on securing such a sparkling attendance by colleagues for a late-night Adjournment debate. Since entering the House in 2010, he has shown consistent interest in reforming early-day motions, most notably by tabling—with tongue in cheek, as he said— an early-day motion entitled “Early-Day Motions” in July 2010.
	I ought to begin by saying that there are, rightly, limits to the Government’s responsibilities for the matters under debate. That was not always so. Between 1994 and 2010, the Government had a very large element of control over whether motions tabled by Back Benchers could be debated on the Floor of the House. The Government were thus the proper recipient of requests for debates on or arising from early-day motions. I seem to recall that that was often a feature of the weekly business question.
	Since the welcome advent of the Backbench Business Committee following a decision of the House in June 2010, it now rightly falls to that Committee to decide what subjects will be debated in Back-Bench time and what form motions for debate should take. Of course, the Government, and particularly my right hon. Friend the Leader of the House, continue to examine early-day motions as barometers of opinion on public policy and matters meriting debate.
	When the Procedure Committee last considered early-day motions in 2007, seven categories or purposes for early-day motions were identified: first, to express opinions on matters of general public interest, often to assess the degree of support among Members; secondly, to continue a political debate, for example by criticising the Government or the Opposition; thirdly, to give prominence to a campaign or the work of some pressure group outside the House, and I will return to that in a moment; fourthly, to highlight local issues, such as the success of a local football team, the achievements of constituents or the need for a bypass; fifthly, to pray against a statutory instrument subject to the negative procedure, both to draw attention to opposition and to encourage referral of the instrument for debate; sixthly, to criticise individuals, including other hon. Members, whose conduct can be criticised only on a substantive motion, and I think that the hon. Member for Newport West (Paul Flynn) has raised that matter before now; and seventhly, to set out detailed criticisms, such as of a company or body, under the protection of parliamentary privilege.
	As the above categories suggest, the scope for early-day motions is wide. Individual hon. Members’ freedom to table them is great. EDMs can be viewed in some ways as a safety valve when Members find their ability to express views limited by the availability of time or by the rules of the House.

Julian Lewis: I am grateful to the Deputy Leader of the House for outlining that helpful list. Does he agree that many of those categories also apply to business questions every Thursday, when hon. Members ask for statements or debates on subjects close to their hearts in the full knowledge that no such statement or debate will follow but because it enables them to make a point? That is what the EDM does, but it has the additional feature that many Members can sign up to it, which enables them to make a point and show that it is widely supported. Would that not be a loss to hon. Members?

David Heath: It was for precisely that reason and connected reasons that the Procedure Committee in the previous Parliament decided against recommending the abolition of EDMs or their substantive reform. However—there are several “howevers”—a major area of discontent for many years, as reflected in the Procedure Committee’s
	report in the last Parliament, concerned the lack of connection between EDMs, whose ostensible purpose was to set down a motion for debate in the House on an unspecified day, and the provision of time on the Floor of the House. The House has taken a major step to respond to this problem with the establishment of the Backbench Business Committee, as I mentioned at the outset.

Robert Halfon: To be fair, the Backbench Business Committee is slightly different, because any MP can ask for a debate regardless of whether they have tabled an EDM. As I have suggested to my hon. Friend the Member for Weaver Vale (Graham Evans), is not the answer—I say this as someone who supports EDMs—to change their name to “MPs Books of Petitions” and to publish them online? That way, no one would be misled over whether they might be debated.

David Heath: I will return to that point in a moment. Yes, the Backbench Business Committee considers any matter brought forward by Back-Bench Members, but it has shown its willingness to enable EDMs to be debated. It demonstrated that by providing time for a debate, on 10 March last year, on an EDM concerning the work of UN Women.
	Drawing on a Procedure Committee recommendation in 2007 that was endorsed by the House on 25 October 2007, the Committee also enabled an EDM to be tagged as “relevant” to the debate on parliamentary reform, which took place in Westminster Hall just over a year ago, on 3 February 2011. The Committee can also draw on EDMs to provide evidence of the breadth of support among Members for a subject of debate, as it did in the case of the Fish Fight campaign. Were they to be named something else, their effectiveness at introducing subjects, with the support of Members, for the Committee to consider would not be reduced. It is a fact that EDMs have that function.
	Although the Committee has fundamentally changed how business in the House is determined—and changed it for the better, in my view—some myths about EDMs linger on, although the hon. Member for Weaver Vale exploded some of them this evening. We are concerned about the propensity of pressure groups effectively to mislead our constituents into thinking that EDMs are something that they are not—an avenue to a procedure in the House—and to suggest that there is a magical number of signatories on an EDM that will cause it to be debated, which of course there is not.
	That notion has persisted over the years, despite the absence of evidence to support it. It might be expedient for some pressure groups and lobbyists to perpetuate that myth and to raise false expectations among our constituents. We have all received e-mails stating that such-and-such an EDM is of critical importance and that we must sign them—I, as a Minister, cannot sign them any more, so I have a ready excuse, but I know that other Members sometimes feel pressurised by that sort of campaign.
	The new House, selected in 2010, seems to have many more Members sceptical about the value of adding their names to EDMs. The average number of new signatories per week fell from 3,704 in the last financial
	year of the previous Parliament, to 1,965 in the first financial year of this Parliament. More Members have decided to adopt a policy of not signing early-day motions—I think we heard an example earlier. Indeed, I understand that Members can record that view with the Table Office. Above all, the Backbench Business Committee has demonstrated through its work that the link between early-day motions and debates is not a crude numbers game. For those reasons, I hope that all Members agree that the myth of a magical number of signatories should be confined to the dustbin, where it belongs.
	The hon. Member for Weaver Vale identified a further problem—others have amplified it—in the triviality of some early-day motions. He referred to what he saw as some examples of early-day motions that devalued the currency. I certainly do not want to comment on any individual cases, but I agree with him that it seems highly questionable whether some early-day motions are appropriate, and that Members should pause for thought about the reputational and cost implications of their actions.

Peter Bottomley: Might not the same thing have applied to William Wilberforce when he first had the rather revolutionary idea of abolishing the slave trade, or Samuel Plimsoll and his idea of painting a white line on the side of ships so that they would not be overladen with sailors who would otherwise go down to Davy Jones’s locker?

David Heath: If I may gently say so, I think there is a difference of kind between those causes, which I think most people would consider to be serious causes, and the fortunes of the local football club on a Saturday afternoon. I think there is a difference, perhaps, in scale of import between those topics.

Bob Russell: Will my hon. Friend give way?

David Heath: I will, but I will have to make progress soon.

Bob Russell: Perhaps I can ask the Deputy Leader of the House to consider these examples: the Gurkha rights campaign and the Royal British Legion’s military covenant campaign, on which I tabled early-day motions, or indeed early-day motion 1—I think—in 2009, which I also tabled and which the then Conservative Opposition thought was so brilliant that they brought it to the House and we had a vote on it.

David Heath: There is no doubt that some early-day motions are of considerable importance in the topics they raise. What I think the hon. Member for Weaver Vale was saying is that there may be better ways of bringing those matters to the House than the current system. There are also things that, frankly, I would be amazed if the House spent its time debating in real life, as opposed to the application that an early-day motion purports to be.
	There are ways in which the issue could be dealt with. The hon. Gentleman suggested that limits might be imposed on the number of early-day motions that an individual Member could table or sign. Those are matters for the Procedure Committee to consider, should it decide to do so, but numerical limits, which were also
	suggested in an intervention, might be seen as an unexceptional constraint on hon. Members’ freedom of action. The implementation of a limit might encourage the syndication of motions. Limits would certainly provide an incentive for hon. Members to ensure that they used their right to table or support motions wisely, but at a cost, in terms of the limitation of their action.

Chris Heaton-Harris: Will the Deputy Leader of the House give way?

David Heath: I do not think I can really take any interventions at this point, because of the time.

Greg Knight: Will the hon. Gentleman give way?

David Heath: I will give way to the Chairman of the Procedure Committee, because he has a role in taking this matter forward.

Greg Knight: Let me place on record the fact that I am here listening to the debate; I am not here as an advocate. I am happy to give an assurance that I will take hon. Members’ views back to the Procedure Committee.

David Heath: I am extremely grateful to the right hon. Gentleman, who rather pre-empts the final comment that I was going to make. I was going to ask him and his Committee to take this matter forward. I now know that when I make that request, the answer will be in the affirmative, for which I am grateful.

Chris Heaton-Harris: As there is now time, will the hon. Gentleman give way?

David Heath: All right, yes—very clever.

Chris Heaton-Harris: I am a Member who refuses to sign early-day motions, as I believe they are the tool of a very poor lobbyist. Will the Deputy Leader of the House reflect on whether a campaign is devalued if a vast number of Members do not sign the relevant early-day motion? If I were someone who signed these things, I would dearly like to sign early-day motion 2637, on diabetes care, which has achieved only 27 signatures. I would say that the EDM devalues that campaign, rather than adding to it.

David Heath: I understand the point that the hon. Gentleman makes, and I think there is some substance to it, as it in no way undermines the fact that it is an important issue that—

Julian Lewis: Will the Deputy Leader of the House give way?

David Heath: I really cannot give way again, because we are coming to the end of what is normally an Adjournment debate between one Back-Bench Member and a Minister, and tonight we have had a cast of thousands.
	The hon. Member for Weaver Vale mentioned the cost of early-day motions. The House service estimated that the cost of administering EDMs in 2009-10 was
	approximately £1 million. The annual cost may have fallen somewhat as a result of the decision not to print the weekly compilation of EDMs, but those costs should certainly give hon. Members pause for thought before they table motions.
	One possible solution is the one suggested by the hon. Gentleman, who proposed that EDMs should only appear electronically. The cost estimate to which I referred earlier indicated that about three quarters of the costs of EDMs were attributable to printing. It is clear that the database is now the main means by which people outside this place, as well as many inside it, access EDMs. My own view is that the time is fast approaching when more categories of business papers can be made available primarily or exclusively in electronic form—I imagine that some will gasp with horror at that suggestion, but I believe that it is one way in which we can actually save the taxpayer money—and that early-day motions may be in the vanguard of change in that regard.
	I think the debate has demonstrated that the time may soon be ripe for the Procedure Committee to look again at the subject of early-day motions, and we have just heard its the Chair, the right hon. Member for East Yorkshire (Mr Knight), say that he would be more than happy to put the matter to the Committee. It is for the Committee and for the House, rather than the Government and this Minister at the Dispatch Box, to specify the appropriate procedure. If proposals for reform were presented—either along the lines advocated by the hon. Gentleman, or in another form as a result of the Procedure Committee’s considerations—it would be for the House to decide on the appropriate solution following a debate in Back-Bench time. In the context of a reformed House with more control over its own affairs, it is not for the Government to present proposals for change in this area. However, the hon. Gentleman has raised an important issue relating to the way in which we as a House conduct our business.
	Perhaps I might surprise the hon. Member for New Forest East (Dr Lewis) by telling him that I now have time to allow him to intervene, if he does so quickly.

Julian Lewis: What a marvellous Deputy Leader of the House we have! I just wanted to record the fact that my hon. Friend the Member for Daventry (Chris Heaton-Harris), who opposes the signing of EDMs, secured my signature, along with those of more than 100 other hon. Members, to a letter that he wanted to send to the press. If it is good enough to send a letter to the press, it is good enough to get a large number of MPs’ signatures on an early-day motion.

David Heath: The hon. Gentleman has done very well to get his intervention in.
	Let me end by thanking the hon. Member for Weaver Vale for raising the issue. We have had an interesting debate, and I look forward to hearing the views of the Procedure Committee in due course.
	Question put and agreed to.
	House adjourned.